ÃÎÄÈØÅÍ ÎÒ ÅÒ 2013 ANNUAL REPORT 2013

Transcription

1 ÃÎÄÈØÅÍ ÎÒ ÅÒ 2013 ANNUAL REPORT 2013 BG EN

2 VIENNA INSURANCE GROUP Vienna Insurance Group (VIG) has been one of the leading listed insurance groups in Austria and Central and Eastern Europe for years. Approximately 23,000 employees in around 50 Group companies in 25 countries generated about EUR 9.2 billion in premiums in As the leading insurance company in its core markets, Vienna Insurance Group provides its customers with an outstanding portfolio of products and services in all segments of life and non-life insurance. At home in both Austria and Central and Eastern Europe During a long history steeped in tradition _ the Company s roots reach back to the year 1824 in Austria _ VIG has successfully overcome all of the challenges of history, and has often taken on a pioneering role. This was the case in 1990, when Wiener Staedtische became one of the first Western European insurance companies to recognise the exciting growth opportunities in Central and Eastern Europe and take a chance on entering the market in the former Czechoslovakia. That was the starting point for further expansion. Hungary followed in 1996, Poland in 1998, Croatia in 1999 and Romania in 2001 _ to mention just a few examples. VIG now operates in 25 markets and is proud of its broad geographical orientation. Number one in its core markets In addition to Austria, VIG s core markets are the Czech Republic, Slovakia, Poland, Romania, Bulgaria, Croatia, Hungary, Serbia and the Ukraine. VIG s market share of approximately 18% makes it the number one insurance company in these markets, and VIG is working continuously to further consolidate this position. More than half of all premiums written in 2013 came from markets in the CEE region, which provides impressive proof of VIG s successful expansion strategy. Indeed, given the economic convergence process taking place in Central and Eastern Europe and the increased need for insurance coverage it brings, this region will continue to grow in importance. VIG RE, the reinsurance company that was established by VIG in 2008, has its registered office in the Czech Republic, thereby stressing the importance of the CEE region as a growth market for VIG. 25 markets, one objective: to continue the mutual success In spite of the wide range of customer requirements and conditions in its individual markets, VIG has one common objective everywhere: to continue its business success by providing customers with the best possible insurance protection. This places a great responsibility on VIG, and the VIG Group companies are fully dedicated to meeting this responsibility, using professional, forward-looking advisory services and a flexible product portfolio. The use of a broad network of service centres and a variety of distribution channels ensures the customer proximity that this requires. At the same time the Group relies on established regional brands that are brought under the Vienna Insurance Group umbrella without losing their own identity or individual strengths. This is because it is the individual strengths and advantages of these companies that make VIG a strong family. Stability based on binding values and a focus on core competences Vienna Insurance Group is a progressive and highly risk-conscious insurer. Its activities are fully focused on its core business _ the insurance business. However, Vienna Insurance Group offers various forms of security to more than its customers. Security in the form of reliability, trustworthiness and solidarity also receives top priority in dealings with business partners, employees and shareholders. Ethical values such as honesty, integrity, leadership in matters large and small, diversity, equal opportunity and customer-orientation form the basis for all business decisions. This fundamental approach is confirmed not only by a strategy of continuous sustainable growth, but also excellent creditworthiness. In June 2013, the rating agency

3 Standard & Poor s confirmed its rating of A+ with a stable outlook, making VIG the best rated company in the ATX leading index of the Vienna Stock Exchange. VIG and Erste Group _ two strong partners In 2008, two leading financial service providers in Central and Eastern Europe _ VIG and the Erste Group _ decided to further increase their success by working together. They therefore entered into a long-term strategic partnership that benefits both of them: Erste Group branches distribute VIG insurance products, and in return VIG companies offer Erste Group bank products. Strong stock exchange presence, long-term principal shareholder VIG s shares have been listed on the Vienna Stock Exchange since Its market capitalisation of more than EUR 4.6 billion at the end of 2013 makes it one of the largest listings on the exchange. It has been also dual listed on the Prague Stock Exchange since February 2008, which once again emphasises the great importance the Central and Eastern European region has for the Group. Around 70% of VIG s shares are held by Wiener Staedtische Versicherungsverein, a stable principal shareholder with a long-term orientation. The remaining shares are in free float. Strong team, attractive employer Our success is based on people _ in addition to forming the basis for VIG s business success, this concept also guides its people management and thereby determines its position as an attractive employer. VIG develops and supports the know-how of its approximately 23,000 employees and their readiness to provide top performance. Identifying and developing the individual skills that each person brings to VIG s large team is particularly important, and a wide variety of training and advanced training opportunities, international exchange programmes and international cooperations exist within the Group to ensure that this happens. Further information on VIG is available at and in the VIG Group Annual Report.

4 Welcome to the family of VIENNA INSURANCE GROUP AG Wiener Versicherung Gruppe

5 MANAGEMENT BODIES ANNUAL REPORT 2013

6 ANNUAL REPORT 2013 SUPERVISORY AND MANAGEMENT BOARD SUPERVISORY AND MANAGEMENT BOARD SUPERVISORY BOARD Chairman Peter Hoefinger Members Gerhard Lahner Josef Aigner Atanas Kanchev AUDITORS KPMG Bulgaria OOD HEAD OFFICE 5 Pozitano Sq Sofia, Bulgaria MANAGEMENT BOARD Chairman Rumen Yanchev _ Executive Director Members Christoph Rath _ Executive Director Ivan Ivanov Rumyana Milanova Ivo Gruev

7 ANNUAL REPORT 2013 MEMBERSHIP AND SHAREHOLDERS MEMBERSHIP OF ZAD BULSTRAD VIENNA INSURANCE GROUP ZAD BULSTRAD VIENNA INSURANCE GROUP is a member of: IUMI (International Union of Marine Insurance) IUAI (International Union of Aviation Insurers) National Bureau of Bulgarian Motor Insurers Association of Bulgarian Insurers Confederation of the Employers and Industrialists in Bulgaria Prof. Dr. Veleslav Gavriyski Foundation Confederation of the Employers and Industrialists in Bulgaria SHAREHOLDERS OF ZAD BULSTRAD VIENNA INSURANCE GROUP TBI Bulgaria AD 85.18% Vienna Insurance Group Wiener Versicherung Gruppe 12.82% Other 2.00%

8 FINANCIAL INFORMATION FOR 2013 ANNUAL REPORT 2013

9 ANNUAL REPORT 2013 GROSS PREMIUM INCOME AND MARKET SHARE GROSS PREMIUM INCOME AND MARKET SHARE OF ZAD BULSTRAD VIENNA INSURANCE GROUP FOR 2013 In 2013 ZAD BULSTRAD VIENNA INSURANCE GROUP generated gross premium income amounting to BGN 172,668 million, which represents a growth of 5.19% compared to the preceding year. This growth is mainly a result of the increase in the premium income from Property and Motor Casco Insurance. The company s gross premium income by lines of business for 2013 is presented in the table below, and its distribution according to major insurance groups is shown in the Portfolio structure. GROSS PREMIUM INCOME OF ZAD BULSTRAD VIENNA INSURANCE GROUP BGN 000 Lines of business Change, % Total 172, , % Motor Insurance 102,095 99, % Casco 54,652 49, % Motor Third Party Liability Related to the Possession and Use of Motor Vehicles, including 47,443 50,279 _ 5.64% _ Motor Third Party Liability 47,443 50,277 _ 5.64% _ Green Card 0 2 _ 87.13% Railway Vehicles Insurance 3,013 3,234 _ 6.82% Property Insurance 38,522 32, % Fire and Natural Perils 32,800 24, % Property Damage 5,721 8,152 _ 29.82% Cargo, Aviation and Marine Insurance 15,700 15, % Cargo Insurance 5,529 5, % Aviation Insurance 5,257 7,387 _ 28.84% Marine Insurance 4,915 2, % Other 13,337 13, % Personal Accident and Travel Assistance 4,450 3, % General Third Party Liability and Carrier s Liability 8,853 9,364 _ 5.46% Financial Losses _ 27.56%

10 Trends in premium income development by main lines of business Motor Insurance Motor insurance accounts for 59.13% of the premium income generated by ZAD BULSTRAD VIENNA INSURANCE GROUP in The market share of the Company for this insurance is 10.31%. BULSTRAD VIG 10.31% MARKET Motor Insurance The actions taken in 2012 for encouraging the sales continue to have effect in Due to the implemented segmentation under the Motor Third Party Liability tariff, the Company reports a slight drop in the insurance sales, while the market itself is growing, mainly as a result of the increase in the tariff for heavy trucks, a segment in which ZAD BULSTRAD VIENNA INSURANCE GROUP is not actively involved. The market share of the Company for this insurance is 8.19%. BULSTRAD VIG 8.19% MARKET Motor Third Party Liability Insurance After a lowering in the premium income of Motor Casco Insurance reported in 2012, the Company introduced changes and improvements in the Bulstrad Casco Standard product. In 2013 the product was successfully positioned on the market, and as a result of the increased sales the Company generated premium income growth of 10% and expanded its market share to 13.31%. BULSTRAD VIG 13.31% MARKET Motor Casco Insurance Property Insurance In 2013 the premium income of Property Insurance in ZAD BULSTRAD VIENNA INSURANCE GROUP grew by 19.07% compared to the previous year. The growth is both the result of newly attracted clients who insured company assets and of the higher sales volume of home property insurance. With a market share of 14.68%, the Company ranks second on the Bulgarian insurance market.

11 BULSTRAD VIG 14.68% MARKET Property Insurance Aviation Insurance In 2013 ZAD BULSTRAD VIENNA INSUANCE GROUP experiences a drop in the premium income from aviation Casco and liabilities amounting to 28.58%, partly due to the general decrease of the premium on the insurance market during the period. Despite this drop, ZAD BULSTRAD VIENNA INSUANCE GROUP ranks second on the market, with a share of 29.59%. BULSTRAD VIG 29.59% MARKET Aviation Insurance Marine Insurance As a result of the successful cooperation with Vienna Insurance Group and their joint participation on the international marine insurance market and despite the adverse trends on this market in Bulgaria (bankrupt ship owners and sub-standard ships), ZAD BULSTRAD VIENNA INSURANCE GROUP regained its first rank on the Bulgarian market, with a share of 48.57% and premium income amounting to BGN 4,915,168. BULSTRAD VIG 48.57% MARKET Marine Insurance Cargo Insurance In 2013, Cargo Insurance generated a premium income growth of 5%. During the year ZAD BULSTRAD VIENNA INSURANCE GROUP retains its traditional top position on the market, with a share of 35%. BULSTRAD VIG 35% MARKET Cargo Insurance

12 General Third Party Liability and Carrier s Liability Insurances In 2013 the Company retains its first rank on the market of General Third Party Liability and Carrier s Liability Insurances, with a total premium income of BGN 8,852,567 and a market share of 26.15%. The premium income from Carrier s Liability Insurance has grown by over 30%. This is mainly due to efforts made for retaining existing clients and for attraction of new clients by offering additional covers with the product. BULSTRAD VIG 26.15% MARKET General Third Party Liability and Carrier s Liability Insurances Personal Accident and Travel Assistance Insurances In 2013 the premium income of these insurance lines amounts to BGN 4,450,496. The growth compared to 2012 is 15.27%. The total market share of these two types of insurance is 11.52%, which places ZAD BULSTRAD VIENNA INSURANCE GROUP forth on the market. BULSTRAD VIG 11.52% MARKET Personal Accident and Travel Assistance Insurances

13 ANNUAL REPORT 2013 PORTFOLIO STRUCTURE PORTFOLIO BY LINES OF BUSINESS IN 2013 Line of business 2013 Total % Motor Insurance 59.13% Casco 31.65% Motor Third Party Liability Related to the Possession and Use of Motor Vehicles, including 27.48% _ Motor Third Party Liability 27.48% _ Green Card 0.00% Railway Vehicles Insurance 1.75% Property Insurance 22.31% Fire and Natural Perils 19.00% Property Damage 3.31% Cargo, Aviation and Marine Insurance 9.09% Cargo Insurance 3.20% Aviation Insurance 3.04% Marine Insurance 2.85% Other 7.72% Personal Accident and Travel Assistance 2.58% General Third Party Liability and Carrier s Liability 5.13% Financial Losses 0.02% 9.09% 7.72% 31.65% Motor Insurance 59.13% Casco 31.65% Motor Third Party Liability Related to the Possession and Use of Motor Vehicles 27.48% 22.31% Railway Vehicles Insurance 1.75% Property Insurance 22.31% Cargo, Aviation and Marine Insurance 9.09% 1.75% 27.48% Other 7.72%

14 ANNUAL REPORT 2013 KEY FINANCIAL INDICATORS KEY FINANCIAL INDICATORS BGN December December 2012 Change, % Gross premium income 172, ,153 5% Earned premium, net 108,223 98,603 10% Incurred claims, net 68,991 65,153 6% Insurance reserves, gross 198, ,613 _ 9% Investment income 6,254 6,216 1% Total assets 332, ,597 _ 7% Shareholders equity 75,918 75,545 0% Financial result for the period 1, % Earnings per share % Technical result _ 1,646 _ 4,127 _ 60.1%

15 ANNUAL REPORT 2013 CREDIT RATING CREDIT RATING As at the end of July 2012, the Bulgarian Credit Rating Agency awarded ZAD BULSTRAD VIENNA INSURANCE GROUP with a long-term credit rating of ia-, with stable perspective.

16 SEPARATE ANNUAL FINANCIAL STATEMENTS FOR 2013 ANNUAL REPORT 2013

17 ANNUAL REPORT 2013 SEPARATE REPORT OF THE ACTIVITIES SEPARATE ANNUAL REPORT OF THE ACTIVITIES OF ZAD BULSTRAD VIENNA INSURANCE GROUP 1. ECONOMIC AND REGULATORY INDICATORS Performance result In 2013 ZAD BULSTRAD VIENNA INSURANCE GROUP generated profit of BGN 1,617 thousand. The financial result for the same period of 2012 was a profit of BGN 689 thousand. The Company s net assets as at the end of the financial year amount at BGN 75,918 thousand (BGN 75,545 thousand for 2012). The Company s assets as at 31 December 2013 amount at BGN 332,200 thousand (BGN 358,597 thousand for 2012). Solvency margin As at 31 December 2013 and 2012 the solvency margin was calculated in compliance with regulatory requirements. The table below summarizes the regulatory indicator implementation. 31 December Own funds less intangible assets 54,357 55,215 Share capital 31,475 31,475 Reserves 51,603 52,158 Retained earnings (losses) less expected payment of dividends and other payments (15,845) (15,367) Reductions Participations in subsidiaries 12,745 12,662 Intangible assets Solvency margin 22,409 26,149 Surplus/(deficit) 31,948 29,066 As at the end of the reporting period, Regulation No 21 requirements from 16 March 2005 about own funds and solvency margin of insurance, reinsurance and health insurance companies are fulfilled, and the total amount of own funds less intangible assets surpasses solvency margin by BGN 31,948 thousand. Programme for Achievement of a Steady Financial Result adopted in 2011 is still being implemented. The Programme is directed mostly at: Gradual increase of Motor Third Party Liability Insurance tariffs through risk profile diversification and regional segmentation. Adequate management of non-material claims occurring outside the territory of the Republic of Bulgaria. Competent management of non-material claims filed in court. Direct sales motivation. Collection improvement and reduction of impairment allowances. Improvement of the General Terms and Conditions and the manner of settling claims under Motor Hull Insurance. Identification and management of risk clients in the Company s portfolio. Cost optimization related to payment of material claims under Motor Hull Insurance. Increasing the share of lines of businesses of lower loss ratio in the insurance portfolio general structure.

18 Technical reserves and coverage Amendments to Regulation No 27 of Financial Supervision Commission (FSC), effective from 12 November 2010, required changes in the methods applied in the calculation of technical reserves and building additional reserves. The net effect of these changes is an increase of reserves by BGN 10,429 thousand for 2013 and BGN 7,378 thousand for 2012, calculated in compliance with regulatory requirements. The management of the Company considers that these changes lead to over-reserving and therefore, upon the assessment of the insurance liabilities, were applied methods consistent with the requirements of IFRS 4. According to the requirements of this standard, as at 31 December 2012 an adequacy test was performed which showed sufficiency of the reserves calculated in compliance with IFRS. The assets which secure coverage of gross insurance reserves in compliance with the regulatory requirements of FSC are: financial assets (deposits, shares, corporate debt instruments, government securities, etc) at the amount of BGN 110,078 thousand; deferred acquisition costs at the amount of BGN 13,656 thousand; receivables under insurance and reinsurance contracts at the amount of BGN 104,773 thousand and investment properties at the amount of BGN 9,041 thousand. The table below summarizes the difference in the assessment of the insurance liabilities, performed in accordance with IFRS and Regulation No 27 of FSC. Unearned premium reserve Unexpired risk reserve 31 December 2013 Outstanding claims reserve Other insuranse reserves Reserves calculated in compliance with regulatory methods, net 48, ,986 7, ,540 Reserves calculated in compliance with IFRS, net 48, ,663 _ 114,111 Difference 3,323 7,106 10,429 Total Unearned premium reserve Unexpired risk reserve 31 December 2012 Outstanding claims reserve Other insuranse reserves Reserves calculated in compliance with regulatory methods, net 47,687 1,757 80,499 5, ,239 Reserves calculated in compliance with IFRS, net 47,687 1,254 78,920 _ 127,861 Difference _ 503 1,579 5,296 7,378 Total In 2012, as a result of the merger, ZAD BULSTRAD VIENNA INSURANCE GROUP acquired Equalisation Reserve amounting to BGN 9 thousand which is a technical reserve for the purposes of FSC but in compliance with the requirements of IRFS it is part of the equity.

19 Indicators relating to the insurance activity In 2013, the Company realized gross premium income at the amount of BGN 172,668 thousand (BGN 164,153 thousand for 2012). The net earned premium for the same period is BGN 108,223 thousand (BGN 98,603 thousand for 2012). The net amount of paid claims in 2013 is BGN 82,248 thousand (BGN 67,208 thousand for 2012). 2. PERFORMANCE ANALYSIS As a result of the negative economic environment in the country (GDP decrease and credit decline), the demand for insurance services has dropped significantly. In order to optimize their expenses, many clients reviewed their insurance programs. The number of vehicles insured under leasing contracts also decreased. The market concentrated mostly on compulsory insurances like Motor Third Party Liability. Other essential negative consequences from the crisis still affecting the development of the insurance sector are: Deterioration of premium collection. Continuous market pressure for commission increases. Last but not least, in terms of Motor Third Party Liability Insurance _ clear insufficiency of the amount of the insurance premium. In comparison to 2013, the Company reported an increase in the premium income by BGN 8,515 thousand or 5%. The chart below shows the movement of the premium income for the past five years. Premium income for 2009 _ 2013 Million BGN Per lines of business, Motor Insurance has the highest relative share. The chart below shows the allocation of the premium income by main lines of business for Premium income per line of business for % 10% 22% 59% Motor Insurance 59% Property Insurance 22% Cargo, Aviation and Marine Insurance 9% Other 10%

20 The Motor business encompasses Motor Hull and Motor Third Party Liability Insurance. Motor Insurances constitute 59% of the premium income generated in Compared to 2012, Motor Hull insurances show an increase by 10%. The main reason for this could be the redistribution of insured entities among the major motor insurance companies. It is important to note that the specific restrictions introduced during recent years continued to be in force during 2013, and that this growth was achieved without using lessening the restrictions on issuance activity. Motor Third Party Liability Insurance has dropped by 6% compared to This is due to the highly competitive environement, both at the level of the commissions and as well as the tariffs. The Company is constantly increasing the average premiums under this insurance and offers diversified tariff for different geographic areas of the country, drivers age groups and other adequate criteria. The premium income from the group of Cargo, Marine and Aviation Insurance for 2013 remains relatively stable at BGN 15,700 thousand, marking a slight increase by BGN 144 thousand compared to Traditionally in these lines of business, the Company is well known and it is a market leader for these specific insurance services. The Company managed to attract back some of its main clients, as well as take advantage of its participation in international insurance programs. The group of Property Insurance includes the insurance of household property, industrial sites, hotels, restaurants, shops. In 2013 the Company marked a 19% increase of premium income under Property Insurance. ZAD BULSTRAD VIENNA INSURANCE GROUP expanded its client base, with a simultaneous increase in the written premiums under corporate business. The group of other insurance products includes accidents, liabilities, agriculture and railway hull. In 2013 the premium written under this group is BGN 16,351 thousand, remaining relatively stable compared to 2012, with a slight decrease of BGN 155 thousand. 3. SHARE CAPITAL AND TRANSACTIONS WITH SHARES OF BULSTRAD VIENNA INSURANCE GROUP The transformation procedure through merger of ZK Bulgarski Imoti AD in ZAD BULSTRAD VIENNA INSURANCE GROUP was completed in November On 13 November 2012 the merger was entered in the Commercial Register, and the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP was increased by BGN 4,039,160 (four million, thirty-nine thousand, one hundred and sixty) by issuance of 403,916 (four hundred and three thousand, nine hundred and sixteen) new ordinary registered voting shares of nominal value BGN 10 (ten) each. Thus, on 13 November 2012 the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP was increased to BGN 31,474,580 (thirty-one million, four hundred seventy-four thousand, five hundred and eighty), distributed in 3,147,458 ordinary registered voting shares of nominal value BGN 10 (ten) each. As a result of the merger, as of 31 December 2012 the share of TBI Bulgaria AD in the share capital of the Company dropped from 97.72% to 85.18%, Vienna Insurance Group Wiener Versicherung Gruppe acquired direct share in the capital amounting to 12.82% and indirect share amounting to 85.18% of the capital of ZAD BULSTRAD VIENNA INSURANCE GROUP by holding 100% of the capital of TBI Bulgaria AD. In 2013 there was no change in the amount of the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP. As of 31 December 2013 the allocation of the share capital of the Company is as follows: Shareholder Share, % TBI Bulgaria AD 85.18% Vienna Insurance Group Wiener Versicherung Gruppe 12.82% Other 2.00%

21 The table below summarizes information on price movements of the shares of ZAD BULSTRAD VIENNA INSURANCE GROUP for the period 1 January 2013 _ 31 December BGN Opening price Closing price Maximum price Minimum price INVESTMENT POLICY The major investment policy parameters of ZAD BULSTRAD VEINNA INSURANCE GROUP are as follows: 4.1. Requirements for return Achievement of a total return with an average level of at least 100 basis points (bp) over the basic interest rate Risk appetite Safety is a dominant consideration which influences the investment of the insurance reserves. Therefore, the admissible risk of loss of principal or income is comparatively low Investment limits À. Time horizon. In terms of the assets/liabilities management, as the liabilities of the Company are predominantly short-term, the time horizon of the portfolio is also short-term. B. Requirements for liquidity. Considering the uncertainty of the cash inflows and cash outflows from the insurance business, liquidity is of prime consideration.the short-term need of liquid funds can be met on a group level as to retain the return on the already invested funds and on more favorable conditions. C. Tax consideration. All revenues of the Company, including income and profit from investments are subject to taxation, pursuant to the Corporate Income Tax Act. D. Statutory and legal considerations. In compliance with the Insurance Code, any insurance company is required to invest its insurance reserves in: Government bonds. Securities issued and guaranteed by the Republic of Bulgaria or a member state. Qualified bonds, issued by third countries. Qualified bonds issued by central banks of third countries. Qualified bonds issued by international organizations in which Bulgaria or a member state is a member. Securities traded on the Bulgarian Stock Exchange or exchanges in member states and qualified bonds traded on regulated markets in third countries. Shares or units of collective investment schemes, issued in Bulgaria or a member state. Bank deposits. Real estate without encumbrances. Derivatives, including options, futures and swaps.

22 5. INVESTMENTS IN SUBSIDIARIES The table below summarizes the investments in subsidiaries: EIRB, London VIG Services Bulgaria Bulstrad Life VIG Bulstrad Health VIG Contact Center Bulgaria 31 December ,567 3, ,288 % share 85% 100% 95.11% 97% 50% _ Capital contributions _ December ,567 3, ,662 Purchase shares/ participation _ 83 _ 83 Merger of ZOD Bulstrad Health into ZAD Bulstrad Life VIG 3,155 (3,155) 31 December ,722 _ ,745 % share 85% 100% 95.53% _ 50% Total On 26 March 2012 at an extraordinary General Meeting of Shareholders of Health Insurance Company Bulstrad Health AD a resolution was adopted to form a Reserve Fund pursuant to Art. 246, para 2, item 4 of the Commercial Law with the funds of the shareholders amounting to BGN 66, (sixty-six thousand, five hundred and ninety-one, 54) to cover any losses from the Company s business in The participation of each shareholder in the Reserve Fund is pro rata to the shares they hold. As of the end of the reporting period ZAD BULSTRAD VIENNA INSURANCE GROUP deposited the entire sum determined amounting to BGN 64, (sixty-four thousand, five hundred and ninety-three, 79). As of 31 December 2012, the investment of ZAD BULSTRAD VIENNA INSURANCE GROUP in Health Insurance Company Bulstrad Health AD was increased to BGN 3,072 thousand. On 30 May 2012 at a Regular Meeting of Shareholders of Vienna Insurance Group Contact Centre Bulgaria AD, a resolution was adopted to change both the number of and nominal value of the Company s shares from BGN 500,000 (fuve hundred thousand) to BGN 50,000 (fifty thousand), and from BGN 1 (one lev) to BGN 10 (ten levs) each. On 7 December 2012 at an Extraordinary General Meeting of Vienna Insurance Group Contact Centre Bulgaria AD a resolution was adopted to increase the share capital of the Company in compliance with Art. 194, para 1 of the Commercial Act, from BGN 50,000 (fifty thousand) to BGN 52,000 (fifty-two thousand) by issuance of a total of 2,000 (two thousand) new ordinary registered voting shares of nominal value BGN 1 (one lev) each, and the present shareholders of the Company subscribed all new shares pro rata to their participation in the share capital of the Company before the increase of the emission value of BGN 310 (three hundred and ten levs) per share. The changes in the share capital of Vienna Insurance Group Contact Centre Bulgaria AD did not bring a change in the % of share participation of ZAD BULSTRAD VIENNA INSURANCE GROUP in the Company, but the investment rose from BGN 70 to BGN 380 thousand. On 31 May 2013 ZAD BULSTRAD VIENNA INSURANCE GROUP and the Bulgarian Industrial Association _ Union of the Bulgarian Business concluded a contract for a purchase by ZAD BULSTRAD VIENNA INSURANCE GROUP of 6,000 (six thousand) ordinary registered

23 voting shares with a nominal value of BGN 10 (ten) each, comprising 3% of the capital of the Health Insurance Company Bulstrad Health AD. After this purchase ZAD BULSTRAD VIENNA INSURANCE GROUP became a sole owner of the capital of ZOD Bulstrad Health, and in this way the non-direct participation of ZAD BULSTRAD VIENNA INSURANCE GROUP in AISMPMTs Bulstrad Health EOOD and in Bulstrad Labor Medicine EOOD changed from 97% to 100%. In order to bring the activities of ZOD Bulstrad Health EAD in accordance with the requirements of the Law on Health Insurance and with a view to the options for this provided under 31 in connection with 29 of the Transitional and final provisions to the Law on amendment and supplement of the Law on Health Insurance, it was decided to start the procedure for transformation through a merger of ZOD Bulstrad Health EAD into Bulstrad Life Vienna Insurance Group. On 19 June 2013 a contract was concluded for a merger under the form required by law. According to the contract for the merger, pursuant to Art. 263(g) (letter æ ), para 2 of the Commercial Law, for accounting purposes the date of 1 October 2013 is the moment when the actions of the Merged Company (ZOD Bulstrad Health) are deemed to be carried out on the account of the Receiving company (ZAD Bulstrad Life Vienna Insurance Group). The procedure for transformation of the Company was finalized in December 2013, and the merger was registered in the Commercial Register on 25 December As a result of the transformation, the share capital of ZAD Bulstrad Life Vienna Insurance Group increased with BGN 735,727, through the issuance of 735,727 new ordinary registered dematerialized voting shares, with a nominal value of BGN 1 each. In this way on 25 December 2013 the share capital of ZAD Bulstrad Life Vienna Insurance Group became BGN 8,635,747, distributed into 8,635,747 ordinary registered dematerialized voting shares with a nominal value of BGN 1 each, and the share of ZAD BULSTRAD VIENNA INSURANCE GROUP in the share capital of ZAD Bulstrad Life Vienna Insurance Group changed from 95.11% to 95.53%. 6. RISKS ASSOCIATED WITH THE ACTIVITY OF THE COMPANY 6.1. Insurance risk The insurance risk is related to the risk of occurrence of an insurance event, where the amount of the damage and respectively of the indemnity due exceeds the amount of formed insurance reserves. Major activities in insurance risk management are: Established rules and procedures for risk analysis for underwriting insurance contracts. Periodic analysis and improvement of the general terms and conditions of the insurance contracts. Regular review and analysis of the incurred claims under the different types of insurances for previous periods based on statistical observations. Defining the self-retention limit in risk covering. Applying a balanced reinsurance policy. Improvement of the processes of valuation and settlement of the insurance claims Market risks The markets risks are associated with the risk of unfavorable movements of the interest rates, the exchange rates between the different currencies and of the market price of securities and other financial instruments, the effect of which influences the Company s profitability. Activities in this direction are: Structuring of the currency assets and liabilities in a way which minimizes the effect of a sudden change in the exchange rates. Pursuance of moderate investment policy, etc.

24 6.3. Other risks Other risks identified and associated with the Company s activity are: Risks of amendments to the legal framework of the insurance market (increased limits of liability under obligatory insurances, setting high limits of different financial indicators, a change in the judicial practice, etc.). Risks of making mistakes in the assumptions made and models used. Risks of fluctuations in the operating data. For the management and control of the identified risks the Company applies various analytical models and uses a broad spectrum of information sources. 7. INTERNAL CONTROL SYSTEM The internal control system is the aggregate of rules and procedures aimed at: Monitoring of the management systems and the risk assessment methods, control of the various risks and their management. The adequacy and observance of the internal procedures in the performance of the insurance, investment and general administrative activity of the Company. The economic and efficient use of the resources. The control activities are assigned to the directors of the specialized departments, the officials exercising managerial functions as well as to the Head of the specialized Internal Control Office. The control over the activities is exercised in compliance with approved programs and adopted rules. 8. REMUNERATION OF THE MANAGEMENT BOARD For its services in 2013 the Management of the Company received total remuneration amounting to BGN 852 thousand (BGN 597 thousand for 2012). In 2013 the management members did not acquire or transfer Company s shares. 9. SIGNIFICANT TRANSACTIONS AND EVENTS IN 2013 No significant transactions or realized events have occurred during the reporting period, except for the acquisition of shares, mentioned under item 5, of the capital of ZOD Bulstrad Health EAD, as well as the finalized procedure on transformation through merger of ZOD Bulstrad Health EAD into ZAD Bulstrad Life Vienna Insurance Group. 10. LOANS GRANTED As of 31 December 2013 ZAD BULSTRAD VIENNA INSURANCE GROUP had a reported receivable under a loan provided to the related entity Bulgarski Imoti Assistance EOOD at the amount of BGN 5,484 thousand, including a principal of BGN 3,118 thousand and interest of 2,366 thousand. The loan matures on 12 December 2014, with an annual interest rate of 7% in As to 31 December 2013 the Company has not granted any other loans. 11. CREDIT RATING As at the end of July 2012, the Bulgarian Credit Rating Agency awarded the Company with a long-term credit rating of ia-, with stable perspective.

25 12. INFORMATION ABOUT THE PROGRAM FOR APPLICATION OF THE INTERNATIONALLY RECOGNIZED STANDARDS OF GOOD CORPORATE GOVERNANCE In consistence with the Standards of Good Corporate Governance, in 2011 the Company ensured compliance with some main practices shown below: 1. Observance of the ratio between independent and dependent members of the Supervisory Board. 2. Preserving the established practice the position of Chairman of the Management Board and Chief Executive to be occupied by one and same person, and the members of the Management Board to be directors of key departments in the Company. 3. The members of the management bodies submitted the required written statements about their participations in management and control bodies of other commercial companies. 4. The members of the Management Board are with regular mandate. 5. No changes occurred in the remuneration of the members of the management bodies. 6. The members of the management bodies fulfilled conscientiously their responsibilities; they treated fairly shareholders in decision-making; attended regularly the meetings, acquainted themselves in advance with the materials and impartially expressed their opinion; abided by the standards of business conduct and ethics; avoided actions, positions or interests which were in conflict with the interests of the Company or which create impression that such conflict existed. 7. The Chief Executive reported regularly of its activity to the Management Board. 8. The requirement the Management Board to have meetings at least once monthly was complied with. The directors were present regularly at the meetings. The established procedures of setting the date, place, time and agenda of the meetings, deliberation of the materials, decision-making and keeping the minutes for the meetings were complied with. 9. The members of the management body had a full access to the Company s management. 10. The Articles of Association of the Company provide for procedures for inspection and assessment for efficient protection of the shareholders rights, regulated in the Bulgarian legislation and in particular, in the Law on Public Offering of Securities. The necessary legal and factual actions have been taken for registration of all shares of the Company on Bulgarian Stock Exchange, which is to provide possibility for the shareholders to execute sale trades with shares. 11. A Code of Ethics of the officials of BULSTRAD VIENNA INSURANCE GROUP was adopted and approved by the Management Board. 12. A specialized Internal Control Office was set up. The rules for the operation of the Internal Control Office were established. 13. Changes in all major rules of the Company s operation were made, in order these rules to correspond to the changes in the business activity. 14. The Company s web page in Internet contains data about the Company and the telephones for communication with it; the quarterly and annual reports of the Company, the management reports and other information on the Company, which is of interest to the investors. 15. The Management Board of the Company controlled the fulfillment of the programme for good corporate governance.

26 13. INFORMATION ABOUT THE MANAGEMENT BODIES OF BULSTRAD VIENNA INSURANCE GROUP As of 31 December 2013 the Supervisory Board of BULSTRAD VIENNA INSURANCE GROUP has the following members: Gerhard Lahner, Peter Hoefinger, Dr. Josef Aigner and Atanas Tsvetanov Kanchev. As of 31 December 2013 the Management Board of BULSTRAD VIENNA INSURANCE GROUP has the following members: Rumen Yanchev, Rumyana Milanova, Ivan Ivanov, Christoph Rath and Ivo Gruev. On 23 November 2012, a Supervisory Board meeting was held where, at his request, Mr Klaus Muehleder was discharged as Management Board member. By virtue of Minutes No 3 from 13 February 2013, the Mangement Board of ZAD BULSTRAD VIENNA INSURANCE GROUP adopted a resolution to discharge Mr Klaus Muehleder as an Executive Officer of the Company. As of the date of preparation of these statements, the changes are entered in the Commercial Register. The Extraordinary General Meeting of the shareholders of ZAD BULSTRAD VIENNA INSURANCE GROUP held on 31 July 2013 took a decision to release Mr Rudolf Ertl, at his request, and Dr Josef Aigner was elected on his position with a five-year mandate. The change was entered in the Commercial Register on 4 October Rumen Yanchev Chairman of the Management Board and Executive Director Christoph Rath Management Board Member and Executive Director

27 ANNUAL REPORT 2013 AUDITORS REPORT KPMG Bulgaria OOD 45/À Bulgaria Boulevard Sofia 1404 Bulgaria Òålephone +359 (2) Telefax +359 (2) Å-mail Internet kpmg.com/bg INDEPENDENT AUDITORS REPORT To the shareholders of ZAD BULSTRAD VIENNA INSURANCE GROUP Report on the Separate Financial Statements We have audited the accompanying Separate Financial Statements of ZAD BULSTRAD VIENNA INSURANCE GROUP (the Company), which comprise the Separate Statement of Financial Position as at 31 December 2013, the Separate Statements of Profit or Loss, Comprehensive Income, Changes in Equity and Cash Flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information Management s responsibility for the Separate Financial Statements Management is responsible for the preparation and fair presentation of these Separate Financial Statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as Management determines is necessary to enable the preparation of Separate Financial Statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these Separate Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Separate Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Separate Financial Statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the Separate Financial Statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the Separate Financial Statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Separate Financial Statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the Separate Financial Statements give a true and fair view of the unconsolidated financial position of the Company as at 31 December 2013, and of its unconsolidated financial performance and its unconsolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

28 Report on other legal and regulatory requirements Annual Report of the activities of the Company prepared in accordance with the requirements of article 33 of the Accountancy Act As required under the Accountancy Act, we report that the historical financial information disclosed in the Separate Annual Report of the activities of the Company, prepared by Management as required under article 33 of the Accountancy Act, is consistent, in all material aspects, with the unconsolidated financial information disclosed in the audited Separate Financial Statements of the Company as of and for the year ended 31 December Management is responsible for the preparation of the Separate Annual Report of the activities of the Company which was approved by the Management Board of the Company on 18 March Dobrina Kaloyanova Authorised Representative KPMG Bulgaria OOD Sofia, 18 March Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Registered with the Commercial Register at the Bulgarian Registry Agency Identity Code IBAN BG06 RZBB BIC RZBBBGSF RaiffeisenBank (Bulgaria) EAD

29 ANNUAL REPORT 2013 SEPARATE STATEMENT OF FINANCIAL POSITION SEPARATE STATEMENT OF FINANCIAL POSITION as of 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) Note 31 December December 2012 ASSETS Intangible assets Investments in subsidiaries 8 12,745 12,662 Other equity investments Investment property 10 9,041 9,041 Property, plant and equipment 11 18,661 19,530 Financial assets 110, ,329 Bank deposits 12 52,013 52,814 Available-for-sale financial assets 13 52,670 46,249 Loans granted 14 5,484 5,266 Reinsurer s share of 84,842 91,752 _ Unearned premium reserve 21 24,515 26,169 _ Outstanding claims reserve 22 60,327 65,583 Insurance and reinsurance receivables 45,411 59,185 Insurance receivables 15 35,910 44,204 Reinsurance receivables 16 9,501 14,981 Other receivables 17 32,058 35,215 Deferred acquisition costs 18 13,656 14,056 Cash and cash equivalents 19 5,395 12,345 TOTAL ASSETS 332, ,597

30 SEPARATE STATEMENT OF FINANCIAL POSITION as of 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) Continued Note 31 December December 2012 EQUITY AND LIABILITIES Equity 20 75,918 75,545 Share capital and share premium 66,092 66,092 Retained earnings (7,169) (8,097) Reserves 16,995 17,550 Gross insurance reserves 198, ,613 Unearned premiums reserve, including 21 72,963 75,110 _ Unexpired risk reserve 186 1,254 Outstanding claims reserve , ,503 Deferred tax liabilities 23 1,557 1,573 Reinsurer s deposits 34,992 35,154 Insurance and reinsurance liabilities 10,228 14,929 Insurance liabilities 24 3,077 5,673 Reinsurance liabilities 25 7,151 9,256 Other liabilities 26 6,678 8,324 Prepaid premiums 27 3,874 3,459 TOTAL EQUITY AND LIABILITIES 332, ,597 The Separate Statement of Financial Position is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor The accompanying notes from 1 to 41 are an integral part of these Separate Financial Statements.

31 ANNUAL REPORT 2013 SEPARATE STATEMENT OF PROFIT OR LOSS SEPARATE STATEMENT OF PROFIT OR LOSS for the period ended 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) For the period ended 31 December Note Gross written premiums , ,153 Premiums ceded to reinsurers 28 (64,938) (59,681) Net written premiums , ,472 Change in gross unearned premium reserve, including 21 2,147 (12,728) _ Change in unexpired risk reserve 1,068 1,400 Reinsurer s share in change in unearned premium reserve 21 (1,654) 6,859 Net change in unearned premium reserve 493 (5,869) Premiums earned, net of reinsurance 108,223 98,603 Reinsurance commissions and profit sharing 29 21,430 16,141 Net investment income 30 6,254 6,216 Other technical income, net of reinsurance 31 1,612 1,527 Other income TOTAL INCOME 137, ,787 Claims paid 33 (112,881) (93,337) Reinsurer share of claims paid 33 30,633 26,129 Net claims paid 33 (82,248) (67,208) Change in outstanding claims reserve, net 13,257 2,055 Change in gross outstanding claims reserve 22 18,513 9,099 Change in reinsurer s share of outstanding claims reserve 22 (5,256) (7,044) Claims incurred, net of reinsurance (68,991) (65,153) Acquisition costs 34 (29,912) (29,481) Change in deferred acquisition costs, net 18 (400) 1,274 Administrative expenses 35 (17,138) (17,748) Other technical expenses 36 (16,470) (9,290) Other non-technical expenses 37 (3,024) (1,787) TOTAL EXPENSES (135,935) (122,185) OPERATING PROFIT 1, Income tax 38 Deferred tax 23, PROFIT FOR THE PERIOD 1, Earnings per share, BGN

32 SEPARATE STATEMENT OF PROFIT OR LOSS for the period ended 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) Continued The Separate Statement of Profit or Loss is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor The accompanying notes from 1 to 41 are an integral part of these Separate Financial Statements.

33 ANNUAL REPORT 2013 SEPARATE STATEMENT OF OTHER COMPREHENSIVE INCOME SEPARATE STATEMENT OF OTHER COMPREHENSIVE INCOME for the period ended 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) For the period ended 31 December Note Financial result for the period 1, Other comprehensive income Items that are or may be reclassified to profit or loss Revaluation of available-for-sale financial assets, net (636) 1,118 Tax related to this component _ 14 Items that will never be reclassified to profit or loss Defined benefit plans _ actuarial gains and losses 26 (25) _ Tax related to this component 23 3 _ Other comprehensive income for the period, net of tax (658) 1,132 Total comprehensive income for the period 959 1,821 The Separate Statement of Other Comprehensive Income is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor The accompanying notes from 1 to 41 are an integral part of these Separate Financial Statements.

34 ANNUAL REPORT 2013 SEPARATE STATEMENT OF CASH FLOWS SEPARATE STATEMENT OF CASH FLOWS for the period ended 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) For the period ended 31 December Note CASH FLOWS FROM OPERATING ACTIVITIES Profit for the period 1, Adjustments for Depreciation and amortization 35 1,452 1,639 (Gains) from financial assets transactions 30 (546) (1,769) (Reversal)/impairment of financial assets 30 (34) 294 Impairment of insurance and other receivables 36, ,468 Foreign currency revaluation Interest income on deposits and financial assets and dividend income 30 (5,980) (5,042) Carrying value of written-off fixed assets Deferred tax 38 (13) (87) Total adjustments (4,906) 159 Changes in Insurance contract provisions, gross 21, 22 (20,660) 51,796 Reinsurer s share of insurance contract provisions 21, 22 6,910 (28,688) Insurance receivables 13,041 (12,753) Reinsurance receivables 16 5,480 (12,796) Other receivables (1,636) (14,347) Deferred acquisition costs, net (2,828) Insurance liabilities 24 (2,596) 956 Reinsurance liabilities 25 (2,105) 4,118 Reinsurance deposits (162) 16,015 Other liabilities (780) 2,257 Paid tax _ (84) Prepaid premiums (1,427) Total changes (1,693) 2,219 Net cash flows from operating activities (4,982) 3,067

35 SEPARATE STATEMENT OF CASH FLOWS for the period ended 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) Continued For the period ended 31 December Note CASH FLOWS FROM OPERATING ACTIVITIES (4,982) 3,067 CASH FLOWS FROM INVESTING ACTIVITIES (Increase) in financial assets (6,081) (8,473) (Increase) in property, plant and equipment 11 (369) (752) (Increase) in investment property 10 _ (64) (Increase) in investments in subsidiaries 8 (83) (374) Interest and dividends received 5,151 4,238 Net cash flows from investing activity (1,382) (5,425) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (586) _ Merger of ZK Bulgarski Imoti AD _ 7,422 Net cash flows from financing activities (586) 7,422 (Decrease)/increase in cash and cash equivalents (6,950) 5,064 Cash and cash equivalents at the beginning of the period 19 12,345 7,281 Cash and cash equivalents at the end of the period 19 5,395 12,345 The Separate Statement of Cash Flows is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor The accompanying notes from 1 to 41 are an integral part of these Separate Financial Statements.

36 ANNUAL REPORT 2013 SEPARATE STATEMENT OF CHANGES IN EQUITY SEPARATE STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) Share capital Share premium General reserves Reserves Revaluation reserve, property, plant and equipment Retained earnings Revaluation reserve _ financial investments and provisions for pensions Profit (Loss) Total equity On 1 January ,475 34, ,110 (607) 1,200 (9,297) 75,545 Total comprehensive income for the period Financial result for the period _ 1,617 _ 1,617 Other comprehensive income Defined benefit plans _ actuarial gains and losses, net (22) (22) Revaluation of available-for-sale financial assets, net (636) (636) Other comprehensive income (658) 1,617 _ 959 Transactions with shareholders recorded directly in equity Retained earnings distribution _ allocation of statutory reserves 103 (103) Retained earnings distribution _ dividends payments _ (586) _ (586) Total transactions with shareholders recorded directly in equity 103 (689) _ (586) On 31 December ,475 34, ,110 (1,265) 2,128 (9,297) 75,918

37 The Separate Statement of Changes in Equity is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor The accompanying notes from 1 to 41 are an integral part of these Separate Financial Statements.

38 SEPARATE STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2013 (All amounts are in thousand of BGN, unless otherwise noted) Share capital Share premium General reserves Reserves Revaluation reserve, property, plant and equipment Retained earnings Revaluation reserve, financial instruments Profit (Loss) Total equity As of 1 January ,435 23,488 _ 18,110 (1,739) 549 (1,541) 66,302 Total comprehensive income for the period Financial result for the period _ 689 _ 689 Other comprehensive income Revaluation of available-for-sale financial assets, net 1,132 1,132 Other comprehensive income 1, _ 1,821 Transactions with shareholders recorded directly in equity Distribution of earnings from previous years 38 (38) Total transactions with shareholders recorded directly in equity 38 (38) Merger of ZK Bulgarski Imoti AD 4,040 11,129 9 _ (7,756) 7,422 As of 31 December ,475 34, ,110 (607) 1,200 (9,297) 75,545

39 The Separate Statement of Changes in Equity is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor The accompanying notes from 1 to 41 are an integral part of these Separate Financial Statements.

40 ANNUAL REPORT 2013 NOTES NOTES TO THE SEPARATE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2013 (All amounts are in thousand of BGN, unless otherwise noted) 1. GENERAL INFORMATION BULSTRAD VIENNA INSURANCE GROUP (the Company) was incorporated in The registered office of the Company is 5 Pozitano Square, Sofia, Bulgaria. The Company is part of Vienna Insurance Group Wiener Versicherung Gruppe, Austria. As of 31 December 2013 the share capital of the Company is distributed among the shareholders as follows: Shareholder Participation, % TBI Bulgaria AD 85.18% Vienna Insurance Group Wiener Versicherung Gruppe 12.82% Other 2.00% In November 2012 the procedure of transformation through merger of ZK Bulgarski Imoti AD in ZAD BULSTRAD VIENNA INSURANCE GROUP was completed. On 13 November 2012 the merger was entered in the Commercial Regsiter, the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP was increased by BGN 4,039,160 (four million, thirty-nine thousand, one hundred and sixty), by issuance of 403,916 (four hundred and three thousand, nine hundred and sixteen) new ordinary registered voting shares, of nominal value BGN 10 (ten) each. Thus, on 13 November 2012 the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP was BGN 31,474,580 (thirty-one million, four hundred seventy-four thousand, five hundred and eighty), distributed in 3,147,458 ordinary registered voting shares of nominal value BGN 10 (ten) each. As a result of the merger, as of 31 December 2012 the share of TBI Bulgaria AD in the share capital of the Company dropped from 97.72% to 85.18%, Vienna Insurance Group Wiener Versicherung Gruppe acquired direct share in the capital amounting to 12.82% and indirect share amounting to 85.18% of the capital of ZAD BULSTRAD VIENNA INSURANCE GROUP by holding 100% of the capital of TBI Bulgaria AD. The Company was granted license No 11 from 16 July 1998 for insurance and reinsurance activities by the Bulgarian Financial Supervision Commission. ZAD BULSTRAD VIENNA INSURANCE GROUP has specialized in offering the following insurance: motor, cargo, aviation, marine, property, liabilities, agriculture as well as reinsurance. The Company has a two-tier management system: Supervisory Board and Management Board. The Company is represented jointly by a Chief Executive Officer and Executive Officer, or by Chief Executive Officer and procurator, or by any two Executive Officers, or by an Executive Officer and procurator. One person cannot be authorized for the whole activity. As of 31 December 2013 the Company employs 473 employees (475 employees in 2012). 2. BASIS OF PREPARATION OF THE ANNUAL SEPARATE FINANCIAL STATEMENTS 2.1. Applicable accounting standards The separate financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS), approved by the European Commission. They comprise of International Accounting Standarts (IAS), International Financial Reporting Standarts (IFRS) and SIC IFRIC interpretations. IFRS comprise also of the latest amendments of and supplements to those standards and interpretations as well as future standards and interpretations approved by the International Accounting Standards Board (IASB).

41 The Company has disclosed the effects from the application of the published International Financial Reporting Standards, which are not yet effective as of the date of Separate Statement of Financial Position and might have an impact on the Company s activity (see Note 3.24). ZAD BULSTRAD VIENNA INSURANCE GROUP also prepares consolidated financial statements in accordance with IFRS and comprising of financial statements of the Company and its subsidiaries. In order to obtain overall notion of financial position, operations results and changes in financial position of the Group as a whole, users should read these separate financial statements along with the consolidated financial statements of the Group Basis of measurement The Company maintains its accounting records and registers in Bulgarian leva (BGN). The data in the financial statements are presented in thousands of BGN. The financial statements are prepared on the historical cost basis except for the financial assets and the investment property, land and buildings, which are stated at fair value. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expense for the period. Actual results may differ from these estimates. These estimates are reviewed on a regular basis and if a revision is required, it is recognized in the period in which estimates are revised. The estimates made by the management in applying IFRS, that have material effect on the financial statements and the accounting estimates with significant risk from material adjustment in the next year are presented in Note 4 _ Accounting Estimates Functional currency and foreign currency transactions The financial statements are presented in Bulgarian leva (BGN), which is the Company s functional and presentation currency. Monetary assets, receivables and liabilities in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction and they are retranslated on a monthly basis at the official exchange rate published by Bulgarian National Bank on the last working day of the month. All exchange rate differences arising on retranslation are recognised as income or expense in the Income Statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The main foreign exchange rates to the Bulgarian leva are as follows: As of 31 December 2013 As of 31 December 2012 EUR 1 BGN EUR 1 BGN USD 1 BGN USD 1 BGN Reclassifications, accounting errors and changes in accounting policies The Company has applied the following new standards and changes in standards, including all further related changes in other standards, with a date of initial application on 1 January Disclosures _ Offsetting Financial Assets and Financial Liabilities (amendments to IFRS 7). IFRS 13 Fair Value Measurement. Presentation of items of Other Comprehensive Income (amendments to IAS 1). IAS 19 Employee Benefits.

42 Offsetting Financial Assets and Financial Liabilities This amendment to the standard does not affect the Financial Statement of 31 December 2013, since the Company does not apply offsetting to its financial assets and liabilities and has not concluded any global agreements for offsetting. Fair Value Measurement IFRS 13 provides a unified framework for fair value measurement and disclosure of fair value estimates when such disclosures are required or permitted by other standards. The standard unifies the definition of fair value as the price for a standard transaction for a sale of asset or a transfer of liability, which would be applied between market participants at the date of assessment. This standard replaces and heightens the requirements for disclosure of fair value estimates in other standards, including those under IFRS 7. As a result, the Company has provided additional disclosures in this respect. In accordance with the transitional provisions of IFRS 13, the Company has applied the new guidelines for fair value measurement in a prospective manner and has not presented any comparative information for the new disclosures. The amendment to IFRS 13 does not affect significantly the valuation of the Company s assets and liabilities as to 31 December Presentation of items of Other Comprehensive Income As a result of the amendments to IAS 1, the Company has changed the presentation of the components under Other Comprehensive Income in its Comprehensive Income Statement. Components which are or may be subsequently reclassified as profit or loss shall be presented separately from those which are to be subsequently reclassified as profit or loss. The comparative information is presented in a manner that meets the new requirements. Defined benefit plans As a result of the amendments to IAS 19 Employee Benefits, the Company changed its accounting policy for reporting actuarial gains and losses under defined benefit plans, towards recognition of all actuarial gains and losses under Other Comprehensive Income. 3. SIGNIFICANT ACCOUNTING POLICIES 3.1. Intangible assets Intangible assets acquired by the Company are initially recognized at cost, which comprises their purchase cost and any directly attributable expenditure. Internally generated intangible assets are recognized only when the company can identify a separate asset to exist that will give rise to future economic benefits for the entity and whose value can be reliably measured. After initial recognition intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Subsequent costs are capitalized if they increase the future economic benefit of the asset. Any other costs are recognized in the Income Statement as incurred. Intangible assets are amortized on a straight-line basis over the expected useful life of the respective assets The following annual amortization rates are applied: Intangible assets Useful life, years % Software 5, 4 20%, 25% Licenses 5, 2 20%, 50% The useful life and amortization method of intangible assets are reviewed at least at the end of each reporting period. Changes in expected useful life or in expected model of consumption of economic benefits from the asset are reflected through a change

43 in the useful life or amortization method, if appropriate, and are treated as changes in the accounting estimates. Intangible assets amortization costs are recognized as current expenses during the reporting period. Any gains or losses arising from derecognition of intangible assets, being the difference between the net proceeds and the carrying amount of the asset, are reported in the Income Statement once the asset is derecognized Investments in subsidiaries Subsidiary is an entity controlled by the Company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Investments in subsidiaries are measured by cost method. The Company recognizes investment income to the extent of its share of the earnings of the subsidiary. Any amount over its share of the accumulated profits is recognized as investment recoverability and a reduction of the original investment Investment property Property is classified as investment property when it is held to earn rental income, and not for administrative purposes or for sale in the ordinary course of business. An investment property is measured initially at cost which comprises it purchase price and any directly attributable expenditure, for example, property transfer taxes, professional fees for legal services etc. Subsequently investment property is carried at fair value, reflecting the market conditions as of the reporting date. Any gains or losses arising from changes in the fair value of investment property are directly recognized in profit or loss in the period in which they arise. Investment property is derecognized from the Statement of Financial Position when it is sold or leased under finance lease or when it is permanently withdrawn from use and no economic benefits are expected from its disposal. Gains or losses arising from the retirement or disposal of investment property (determined as the difference between the net disposal proceeds and the carrying amount of the asset) are recognized in profit or loss in the period they occur Property, plant and equipment Property, plant and equipment are initially recognized at acquisition cost. Acquisition costs comprise of purchase price, import duties and other cost, directly attributable to bringing the asset to the condition necessary for it to be capable of operating. Attributable costs are mainly: costs of initial delivery and handling cost; costs arising from the construction of the asset; professional fees, etc. Land and buildings are measured at revalued amount, which is their fair value at the date of the revaluation less the accumulated depreciation and any possible impairment losses. The fair value is estimated on the base of professionally qualified valuers appraisal as on the date of the preparation of the report on financial position. If the value of such assets is increased as a result of revaluation, the increase is directly recognized in other comprehensive income and accumulated in equity in Revaluation reserve item, except for of the cases when it reverses a revaluation decrease previously recognized in profit or loss. In such case the revaluation is recognized as income. When there is a decrease of the fair value of an asset for which there is a revaluation reserve formed, the decrease is recognized directly through equity, reducing the revaluation reserve, up to the amount of credit balance which exists in the revaluation reserve of this asset. If there is no revaluation reserve formed (or it is insufficient), the decrease is recognized as an expense during the current period and shall be presented in the Income Statement. Plant and equipment are carried at cost less any subsequent accumulated depreciation and impairment losses.

44 Any subsequent expenditure relating to an item of property and plant is capitalized only when it increases the future economic benefits of the asset or its useful life. All other expenditure such as day-to-day servicing and maintenance costs are recognized in profit or loss as incurred. Depreciation is charged on a straight-line basis over the estimated useful lives of items of property, plant and equipment as follows: Property, plant and equipment Years % Buildings % Computers 5.0, %, 25% Vehicles 6.6, %, 20% Furniture and equipment 6.8, % Land is not depreciated. The carrying amount, the useful life and the method of depreciation of the assets must be reviewed at each financial year-end, and if necessary they should be changed. At each reporting date the Company determines whether there is any objective evidence for impairment of property, plant and equipment. An asset must be impaired when its recoverable amount is less than its carrying amount in the Statement of Financial Position. Any impairment losses in respect of plant and machinery are expensed in profit or loss as incurred. Impairment losses in respect of land and buildings are charged directly against any related revaluation surplus. The entity derecognizes the carrying amount of an item of property, plant and equipment from the Statement of Financial Position when the asset is sold or no future economic benefits are expects from its use. Gains and losses arising on disposal of property, plant and equipment (determined by comparing the proceeds from disposal with the carrying amount of the asset) are recognized in profit or loss in the period they occur. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings Financial assets The Company classifies its investments as financial assets at fair value through profit or loss, available-for-sale financial assets, financial assets held to maturity and loans and other receivables, other investments in equity instruments. Recognition and measurement The Company recognizes financial asset when it becomes a party under contractual relations. Any purchase or sale of financial assets is recognized on the trading day, i.e. the date on which the Company engages to buy or sell the asset. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include trading instruments which are held by the Company chiefly for the purpose of short-term profit taking as a result of changes in the asset s fair value. Such financial assets include treasury and corporate debt securities as well as investments in capital instruments of companies over which the Company does not have control or significant influence. Initially these financial assets are recognized at fair value which is equal to their cost. After initial recognition financial assets at fair value through profit or loss are remeasured at fair value, determined as of the reporting date. Any gains or losses arising as a result of the change in the fair value of these assets are recognised in the Income Statement. Any interest received during the time of possession of the financial asset are recognized in the Income Statement as interest income. Dividends from equity instruments are recognized in the Income Statement, when the right of the entity to receive payment is established.

45 Loans and receivables Loans and receivables are non-derivative financial assets with fixed and determinabie payments that are not quoted in an active market. All loans and receivables are recognised upon the actual granting of the funds to the borrowers or upon establishment of the right to a receivable. These investments are initially recognised at cost. Subsequent to initial recognition, these investments are carried at amortised cost. The amortized cost is the amount at which the financial assets are measured at their initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initial amount and maturity amount and minus any reduction for impairment or uncollectability. Gains and losses from derecognition, impairment and amortization of loans and receivables are recognised in the Income Statement. The Company s right to recover from the insured or third party, liable for the damage, the payment made by the Company under an insurance contract is recognized as a recourse receivable on the day when this right is established. At each reporting date the Company assesses whether any objective evidence of impairment of loans and receivables exists. The amount of the impairment is measured as the difference between the asset s carrying value and the present value of the estimated future cash flows, discounted at the financial asset s original effective interest rate. The amount of the loss is recognized in the Income Statement. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal shall be recognised in profit or loss. Held-to-maturity financial assets Financial assets held to maturity are assets with fixed or determinable payments and fixed maturity, which the Company has the positive intent and ability to hold to maturity. These instruments are initially measured at fair value plus any expenses, directly attributable to the acquisition transaction. Subsequent to initial recognition, these investments are carried at amortized cost. Gains and losses are recognized in the Income Statement when the investments are derecognized or impaired, as well as through the amortization process. At each reporting date the Company assesses whether any objective evidence of impairment of loans and receivables exists. The amount of the impairment is measured as the difference between the asset s carrying value and the present value of the estimated future cash flows, discounted at the financial asset s original effective interest rate. The amount of the loss is recognized in the Income Statement. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. The amount of the reversal shall be recognized in profit or loss. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are not classified as loans and receivables; held-to-maturity assets or financial assets at fair value through profit and loss. They include treasury and corporate debt securities as well as investments in capital instruments of companies over which the Company does not have control or significant influence.

46 These investments are initially recorded at fair value, which is equal to cost plus transactions costs that are directly attributable to the acquisition. The subsequent measurement of financial assets available-for-sale is also at fair value as at the reporting date. Any gains and losses arising from change in the fair value of these financial assets are recognized as a separate component of other comprehensive income, except for impairment losses, which are recognized in profit and loss. Upon derecognition of a financial asset any accumulated gain or loss previously recognized in equity is recognized in profit and loss. Any interest received during the time of possession of the financial asset are recognized in the Income Statement as interest income. Dividends from equity instruments availablefor-sale are recognized in the Income Statement, when the right of the entity to receive payment is established. At each reporting date the Company assesses whether any objective evidence exist for impairment of a financial asset or a group of financial assets. The Company has adopted that a financial asset classified as available-for-sale must be impaired when its fair value decreases by more than 50% in six months or the decrease in its fair value since the purchase till the reporting date is more than 80%. When the decrease in the fair value of an available-for-sale asset is recognized directly in equity and objective evidence exists that the asset is impaired, the accumulated loss is deducted from equity and recognized through profit or loss. The amount of the accumulated loss deducted from equity and recognized in the profit or loss is the difference between the acquisition cost (net of repayments of the principal and amortization) and the current fair value, less the impairment loss recognized previously in the profit or loss. Impairment losses, recognized in profit or loss, for an investment in an equity instrument classified as available-for-sale shall not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss. Other equity investments The Company classifies investments in capital instruments that do not have a quoted market price in an active market as other investments in equity instruments. Investments in such financial instruments whose fair value cannot be reliably measured are recognized in the Statement of Financial Position at original cost Derecognition of financial assets The Company derecognizes a financial asset (or part of financial asset, if applicable), when: Contractual rights to the cash flows from the asset have expired. The Company has retained the right to receive the cash flows from the asset, but has undertaken a contractual obligation to pay all cash flows collected, without considerable delay, to a third party under a transfer transaction. The Company has transferred the contractual rights to receive cash flows form the asset, whereupon: _ the Company has transferred all or substantially all risks and rewards from the owning of the financial asset; or _ the Company has neither transferred, not retained all or substantially all risks and rewards related to the asset, but has lost control over it. Upon derecognition of an available-for-sale financial asset, the accumulated revaluation reserve is derecognized from equity and recognized in profit and loss.

47 3.6. Fair value of financial instruments Policy applicable from 1 January 2013 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the bank has access at that date. The fair value of a liability reflects its non-performance risk. When available, the bank measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e., the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e., without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss depending on the individual facts and circumstances of the transaction but not later than when the valuation is supported wholly by observable market data or the transaction is closed out. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. The bank recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. Policy applicable before 1 January 2013 Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction on the measurement date. When available, the bank measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm s length basis. If a market for a financial instrument is not active, the bank establishes fair value using valuation techniques or techniques of discounted cash flows. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the bank, incorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. The input data appropriately present the market expectations and measurements of risk and yield factors of the financial instrument. Detailed description of the methods used for measurement of financial instruments is presented in Note 4 to these financial statements.

48 3.7. Bank deposits Bank deposits represent cash with banks with original maturity of more than 90 days. Bank deposits are carried at cost plus any accumulated interest Cash and cash equivalents For the purposes of preparation of the Statement of Financial Positions and the Statement of Cash Flows, the Company recognizes as cash and cash equivalents all highly liquid and freely available financial assets, in cash form, funds in current and deposit accounts with original maturities of up to 90 days Impairment of non-financial assets The carrying amounts of the Company s non-financial assets at fair value are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset s recoverable amount is estimated. The recoverable amount of non-material assets still at hand for use is determined at the reporting date. An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. Impairment loses are recognized in profit or loss Insurance contracts Insurance contracts are those that transfer significant insurance risk over the Company. The Company defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insurance event are at least 10% more than the benefits payable if the insurance event had not occurred. Once classified as insurance contracts at the date of inception, the Company continues to recognize them as insurance contracts over the period of their duration, even if the insurance risk reduces significantly during this period, unless all rights and obligations, arising from the insurance contract have expired or have been canceled. Unearned premium reserve (UPR) The unearned premium reserve is formed for covering the claims and administrative expenses, which are expected to arise on the respective type of insurance contract after the end of the reporting period. The basis for calculation of the unearned premium reserve corresponds to the base for recognition of the Company s premium income. The amount of the reserve is calculated under the precise day method. Unexpired risk reserve Unexpired risk reserve is formed to cover risks for the period between the end of reporting period and the date on which the insurance contract expires in order to cover the payments and expenses related to these risks which are expected to exceed the UPR formed. The Company forms unexpired risk reserve when the gross technical result of certain line of business has been negative for the last three years, including the current reporting period. Outstanding claims reserve Outstanding claims reserve (OCR) is set to cover losses on claims for which insurance events have occurred before the reporting period, whether reported or not, and have not been paid as of the period end. The outstanding claims reserve comprises of: reported but not paid claims and incurred but not reported claims (IBNR), along with claims handling expenses. The amount of the reserve for reported but not paid claims is calculated using the claimby-claim method, according to which the expected amount of the claim payment for any reported but not settled claim is determined. The amount of the reserve for incurred but not reported claims is estimated by applying the chain ladder method. For the estimation of this reserve the Management considers the experience for the current period and the past four years. The Company reviews the claims development process, the period of occurrence and reporting of insurance events. It assumed that the delay for reporting the claims is not subject to change in time and there is a correlation between the adjacent periods claims payments developments.

49 Deferred acquisition costs Any direct and indirect costs made for the purpose of renewal of existing and the conclusion of new insurance contracts shall be deferred for the time of the contract s term. Such costs represent mostly costs for commissions and advertisement expenses Reinsurance contracts The Company cedes part of the insurance risk it bears under insurance contracts to reinsurers. The estimated benefits for the Company from reinsurance contracts regarding outstanding claims are recognized as assets in the Statement of Financial Position when incurred. Management periodically performs an impairment test of receivables from reinsurers. A reinsurance receivable is considered impaired when objective evidence exists about an event that occurred after initial recognition of the receivable and the Company may not receive entire amount due as agreed in contract as a result of this event and this event has direct impact on the amount that the company will receive from the reinsurer that could be reliably measured. If objective evidence for impairment exists, the reinsurance receivables are written down to their recoverable amount. The difference is recognised as change in the reinsurer s share in the outstanding claims reserve and as an expense in the Income Statement. The premiums ceded to reinsurers are recognized as expense when incurred Lease liabilities Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of liability. Finance expenses are recorded in profit and loss in the period incurred. Any initial direct costs are added to the amount recognised as an asset. The depreciation policy for depreciable leased assets is consistent with that for depreciable owned assets. If there is reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated for a period equal to its useful life. Otherwise the asset is depreciated over the shorter of the lease term and its useful life. Leases in terms of which the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease Liabilities Borrowings and other payables are initially recognised at fair value. Subsequently they are presented at amortised cost using the effective interest rate method. Costs are recognised in the Income Statement for the period they were incurred Provisions A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The interest of the discounted amount is recognized as a finance cost.

50 3.15. Income recognition The income from insurance contracts is recognized at the time, in which the insurance coverage becomes effective, i.e. the Company is exposed to significant insurance risk (underwriting year). The income from insurance contracts with deferred payments is accrued up to the full amount of the premium and the instalments due are recorded in the statement of financial position as insurance receivables. The premiums are reported gross of paid commissions to intermediaries. Premiums accured under cancelled contracts are derecognized. Derecognized premiums for the current reporting period which correspond to insurance policies issued during the current period are recognized as a decrease of gross premium income. Derecognized premiums in the current reporting period which reflect an adjustment of premium income that was recognized in previous periods are recognized as an expense for written-off premiums. Receivables arising from liabilities of third parties liable for damage inflicted, is recognized as recourse on the date on which right of recourse is established Paid claims Paid claims expenses are recognized in the period when they occur (insurance event year). They include claims paid expenses and claim handling expenses Expenses for remuneration of agents and brokers (commission expenses) The expenses for remuneration of agents and brokers are accrued for the period which the respective premium income is related to Administrative expenses Administrative expenses comprise of personnel expenses, depreciation charges for property, plant and equipment, and amortisation charges for intangible assets, advertising costs, offices maintenance etc., to the extent that they are not reported as net commission expenses, claims incurred and investment expenses. Administrative expenses are recognized in the Income Statement in the reporting period they occurred Net investment income Net investment income comprises the Company s gains and losses from managing its assets for covering the insurance contract provisons. Investment income consist of interest income on bank deposits and assets available-for-sale; rental income of investment properties; change of fair value of financial instruments recognized at fair value through profit or loss; change in the fair value of investment properties, impairment losses of assets available-for-sale as well as income from reversal of such impairment losses; gains realized through sales of investments; foreign currency revaluations and others, net of asset management fees Employee benefits Employee benefits are all forms of considerations given by the Company in exchange for service rendered by employees. Employee benefits include wages, salaries, additional pay determined according to the applied remuneration schemes, additional pay for years served, overtime, internal replacement and others, social security contributions, including paid sick leaves, maternity leaves and others, paid annual leaves and other paid leaves. Accumulating paid annual leaves are those that are carried forward and can be used in the future if the current period s entitlement is not used in full. The Company also accrues retirement provisions which are related to legal requirements for defined post-employment benefits plans. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service

51 provided by the employee, and the obligation can be estimated reliably. The Company recognises as a liability the undiscounted amount of the estimated costs related to annual leave expected to be paid in exchange for the employee s service for the period completed. Termination benefits are recognised as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss, except to the extent that it relates to items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustments to tax payable in respect of previous years. The deferred tax is calculated through application of the liability method, in respect of any temporary differences as of the reporting date, existing between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for temporary differences from initial recognition of assets and liabilities upon transactions that do not concern profit or loss, for neither accounting nor taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities against current tax assets or the deferred tax assets and liabilities will be settled simultaneously. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which carry forward tax loses and tax credits can be utilized. Deferred tax assets are reviewed as of each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realized Earnings per share The Company calculates basic earnings per share for profit or loss, allocated between the holders of ordinary shares. The basic earnings per share are calculated by dividing the profit or loss for the period, which is to be allocated between the holders of ordinary shares, by the average number of ordinary shares for the period. The Company has not issued financial instruments that give their holder the right to purchase ordinary shares (potential ordinary shares), because of which the diluted earnings per shares equal the basic earnings per share Merger On 13 November 2012, the procedure of transformation through merger of ZK Bulgarski Imoti AD in ZAD BULSTRAD VIENNA INSURANCE GROUP was completed, and as a result, on the date of transformation all assets and liabilities of ZK Bulgarski Imoti were acquired as per carrying amount by ZAD BULSTRAD VIENNA INSURANCE GROUP as its universal successor; the merging entity was terminated without liquidation. All components from the Statement of Changes in Equity as of 13 November 2012 of the merged entity ZK Bulgarski Imoti AD were added on the date of the merger to the

52 respective components in the Statement of Changes in Equity as of 13 November 2012 of the acquirer ZAD BULSTRAD VIENNA INSURANCE GROUP. By virtue of the exchange ratio of the shares in the share capital of the merging entity and those of the acquirer (one share of the capital of the acquirer is equal to shares of the capital of the merging entity), on 13 November 2012 the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP was increased by BGN 4,039,160 (four million, thirty-nine thousand, one hundred and sixty) by issuance of 403,916 (four hundred and three thousand, nine hundred and sixteen) new ordinary registered voting shares of nominal value BGN 10 (ten) each, and as a result of the merger, there is a capital reserve which is shown in the Statement of Changes in Equity of ZAD BULSTRAD VIENNA INSURANCE GROUP as share premium New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations, endorsed by the EC, are available for early adoption in the annual period ended 31 December 2013, although they are not yet mandatory until a later period. These changes to IFRS have not been applied in preparing these financial statements. The Company does not plan to adopt these standards early. Standards, interpretations and amendments to published standards that have not been early adopted _ endorsed by the European Commission Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities shall be applied, at latest, as from the beginning of the first financial year starting on or after 1 January The Company does not expect the Amendments to have any impact on the financial statements since the Company does not apply offsetting to any of its financial assets and financial liabilities and it has not entered into master netting arrangements. IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities, IAS 27 Separate Financial Statements (2011) which supersedes IAS 27 (2008) and IAS 28 Investments in Associates and Joint Ventures (2011) which supersedes IAS 28 (2008) shall be applied, at latest, as from the beginning of the first financial year starting on or after 1 January These standards are not expected to have any material impact on the financial statements. Standards, interpretations and amendments to published by IASB/IFRIC document, not yet endorsed by European Commission The Management believes that it is appropriate to disclose that the following new or revised standards, new interpretations and amendments to current standards, which are already issued by the International Accounting Standards Board (IASB), are not yet endorsed for adoption by the European Commission, and therefore are not taken into account in preparing these financial statements. The actual effective dates for them will depend on the endorsement decision by the European Commission. IFRS 9 Financial Instruments (issued November 2009 and Additions to IFRS 9 issued October 2010) has an effective date 1 January 2015 and could change the classification and measurement of financial instruments. 4. ACCOUNTING ESTIMATES Main sources of valuation uncertainty Uncertainty assessment related to technical reserves The most important estimates in the Company s financial statements are related to the technical reserves. The Company applies reasonably prudent approach to the provisioning and complies with the legal regulations. The chief actuary is licensed by the Financial Supervision Commission. The Management considers that the current level of the technical reserves is sufficient enough.

53 The insurance risk management is described in the following attachment, and information about the provisions is provided in Notes 21 and 22. Determination of the fair value of financial instruments The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1. Quoted market price (unadjusted) in an active market for an identical instrument. Level 2. Valuation techniques based on observable inputs different from the quoted prices included in Level 1, available for the asset or liability whether directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3. Valuation techniques using significant unobservable inputs. The tables below show the book value and fair value of the financial assets and financial liabilities, including their levels in the hierarchy of fair values. No information on fair values is included where the book value is a reasonable approximation of the fair value. The table below shows analysis of financial instruments, booked at fair value, classified according the revaluation methods used.

54 31 December 2013 Book value Fair value In BGN thousand Note Loans and receivables Available for sale Other Total Level 1 Level 2 Level 3 Total Financial assets assessed at fair value Bulgarian government securities _ 25,962 _ 25,962 25,962 25,962 Foreign government securities _ 15,615 _ 15,615 15,615 15,615 Corporate bonds _ 9,113 _ 9,113 6,680 2,433 _ 9,113 Shares in contractual funds _ 195 _ Shares of commercial enterprises _ 1,647 _ 1,647 1,647 1,647 Municipal bonds _ 138 _ 138 _ 138 _ _ 52,670 _ 52,670 Financial assets not assessed at fair value Loans granted 14 5,484 5,484 _ 5,568 _ 5,568 Receivables under insurance and reinsurance operations 15, 16 45,411 45,411 Other receivables 17 32,058 32,058 Bank deposits 12 52,013 52,013 _ 52,313 _ 52,313 Cash and cash equivalents 19 5,395 5,395 _ 5,395 _ 5,395 Investments in subsidiaries 8 12,745 12,745 Other equity investments ,361 _ 12, ,199 Financial liabilities not assessed at fair value Deposits of reinsurers 34,992 34,992 Liabilities under insurance operations 24 3,077 3,077 Liabilities under reinsurance 25 7,151 7,151 Other liabilities 26 6,678 6,678 Pre-paid premiums 27 3,874 3,874 55,772 55,772

55 Segment reporting The Company does not report information by operating segments because the main source of risk and return is the non-life insurance business, where there is no a single internal client whose revenues exceed 10% and the Company operates on the territory of the country. If this changes in the future and the Company presents its financial statements by operating segments, then they shall be formed and presented in compliance with the requirements of IFRS 8 Operating Segments and shall be announced in Note INSURANCE RISK MANAGEMENT 5.1. Insurance risk management objectives and policies Insurance risk is the risk of occurrence of an insurance event, where the amount of damage and respectively of due indemnity exceeds the amount of the insurance reserves formed. To manage this risk the Company performs a detailed analysis of various insurance risks and reflects this in the general terms and conditions of the insurance policies. In addition, the Company transfers some of its risks to reinsurers. When choosing the type of the reinsurance treaties, the Company considers the retention levels, the specifics of the insurance products, etc. Regardless of the fact that the Company has reinsurance contracts, any possible income from the reinsurer s share in indemnities is not transferred to the insured persons. In this case the Company is exposed to credit risk of up to the liabilities that the insurer must pay according to the reinsurance treaty. The Company has adopted strict rules for selection of reinsurers. Selection is focused on reinsurers that have been awarded high credit ratings. The Company manages its insurance risk through insurance underwriting limits, procedures for approval of transactions, which involve new products or which exceed certain limits, pricing methods and centralised reinsurance management. The Company applies several methods for assessment and monitoring of insurance risk exposures, for both individual types of risks and overall risk exposure Underwriting strategy The Company s underwriting strategy seeks product diversity to ensure a balanced portfolio. At present the Company offers over 80 insurance products. Every year the full range of products offered is analyzed, adapted and complemented and for that purpose, both the Company s results and the insurance needs of the market are considered. A major share of the Company s insurance portfolio is taken by Motor Insurance, followed by Property Insurance. The Company has also been a leader in the field of Aviation, Marine and Cargo Insurance for many years Product characteristics The Company offers a list of insurance products approved by the Financial Supervision Commission. Motor Insurance The Motor line of business includes Motor Hull, Third Party Liability Related to the Possession and Use of Motor Vehicles, Accident Insurance for Passengers in Motor Vehicle and Travel Assistance in Bulgaria and abroad. The risks covered completely meet the insurance coverage needs of owners, users and holders of motor vehicles. The territorial scope of these insurance policies covers all of Europe.

56 A flexible premium tariff policy has been developed, which allows for the calculation of different policy premiums for the different insurance risks. The terms and conditions of insurance contracts and the deadlines for reporting and settlement of claims are entirely consistent with the legal requirements. Property Insurance The Property Insurance group includes the insurances of household property against fire, natural disasters, burglary and other usual risks. The terms and conditions of insurance contracts reflect to the utmost customers needs and they comply with the legal and regulatory requirements. When evaluating the risk associated with these insurance contracts, the Company stresses on the adequate evaluation of the insured sum and periodically surveys the insured objects. Aviation, Marine and Cargo Insurance The terms and conditions of these insurance contracts are entirely consistent with the international insurance markets. Third Party Liability Insurance The Company offers a wide range of products of General Third Party Liability policies and Professional Liability policies (including professional liability of notaries, lawyers, medical staff etc.), most of which are obligatory by virtue of a normative act. Personal Accident and Travel Assistance Personal Accident insurances cover the risk of death, permanent or temporary disability as a result of an accident Concentration of insurance risk With regards to risk concentration, Management believes that efforts were made to achieve a relatively uniform allocation of insured objects. Risk is assessed on a systematic basis by the Company experts and accumulation of insurance sums is monitored both by groups of clients and by regions Basic assumptions for calculation of the insurance contract provisions The process used to determine the assumptions is intended to result in neutral estimates of the most likely or expected outcome of insurance events. The sources of information used as inputs for the assumptions are internal and they are based on detailed studies carried out annually. The assumptions are reviewed to ensure that they are consistent with observable market prices or other published information. There is stronger emphasis on current trends, and if there is insufficient information to make a reliable best estimate of claims development, prudent assumptions are used. Each reported claim is assessed with due regard to the claim circumstances, information available from loss adjusters and historical evidence of the size of similar claims. Case estimates are reviewed regularly and are updated as and when new information becomes available. The provisions are based on information currently available. The key methods used for the estimation of the insurance contract provisions remain unchanged from prior years and are based on expected loss ratios and on the Company s estimation of the expected loss ratios by classes of business. The assumptions that have the greatest effect on the estimation of insurance contract provisions are the expected loss ratios for the most recent accident years for the different classes of business. When assessing the incurred but not reported claims reserve (IBNR), it is assumed that the tendency for development of delays in claims reporting shall remain unchanged in the next few years. This assumption is set in the method used for calculation of the provision. In regards to the unearned premium reserve for all insurance policies with fixed insurance periods, an assumption is made that risk allocation during the period will remain uniform.

57 For insurance policies without fixed insurance periods, an average insurance period is set, which is determined on the basis of statistical data for past period. Again, an assumption is made that risk allocation during the period will remain uniform Sensitivity analysis The table below shows ten simulations for analysis of the factors affecting Company s solvency. The analysis uses the capital position of the Company as of the reporting date as a starting point. The capital required represents the solvency margin set according to national legislation. The cover ratio represents the coverage of the required capital with own funds and is calculated as a ratio of equity to required capital. Equity funds Required capital Cover ratio Change in cover ratio Basic capital position as of 31 December ,357 22, % Increase in interest rates by 50 bp 52,891 22, % (6.5%) Decrease in interest rates by 50 bp 55,866 22, % 6.7% Increase in the market value of equity instruments by 15% 54,772 22, % 1.8% Decrease in the market value of equity instruments by 15% 53,942 22, % (1.8%) Increase in the market value of real estates by 10% 55,261 22, % 4.0% Decrease in the market value of real estates by 10% 53,453 22, % (4.0%) Increase in uncollectable insurance receivables by 1% 53,998 22, % (1.6%) Decrease in uncollectable insurance receivables by 1% 54,716 22, % 1.6% Increase in claims ratio (outstanding claims reserve) by 1% 53,097 22, % (5.6%) Decrease in claims ratio (outstanding claims reserve) by 1% 55,617 22, % 5.6% The table clearly shows that the change in the claims ratio has the strongest effect on the Company s capital base as the indicator affects both equity and required capital. The results from all scenarios demonstrate a stable solvency margin and capacity to take even more unfavourable scenarios Liability adequacy test The chief actuary periodically performs a liability adequacy test to ensure that the reserves, less the deferred acquisition costs are sufficient to cover potential future claims payments. In the assessment of the adequacy of the insurance reserves, the Company takes into account all expected cash flows from insurance contracts, such as claim payments, claims handling expenses, etc. The unearned premium reserve adequacy test is limited to the unexpired part of the active portfolio of insurance contracts and represents a comparison between earned premiums and all costs incurred, including those for occurred claims, acquisition and administrative expenses. For the insurance products where the occurred claims and the incurred costs for the last three years, including the current year, are higher than the earned premiums, an additional unexpired risk reserve is formed. The calculations of unearned premium reserve adequacy test are presented in the table below.

58 Type of insurance Accident Including Accident of Public Transport Passengers Illness _ 3. Motor Hull 6, , Railroad Vehicles 140 1,767 1, Aircraft Hull 3,794 4,810 2, Marine Hull (866) 243 (2,812) 7. Cargo in Transit Fire and Natural Disasters 9,358 6,291 15, Property 4,361 (526) 4, Third Party Liability Related to the Possession and Use of Motor Vehicles (2,093) 4,015 (1,246) Including Motor Third Party Liability (219) 3,516 (366) Including Green Card (1,874) 499 (878) Including Border Motor Third Party Liability _ Including Motor Third Party Liability of the Carrier (2) 11. Aviation Third Party Liability , Marine Third Party Liability 344 (1,126) General Third Party Liability 1,211 2,318 2, Credit Insurance _ 15. Guarantee Insurance _ 16. Miscellaneous Financial Losses (361) (367) (160) 17. Legal Expenses Insurance _ 18. Travel Assistance Total 23,522 19,650 32,386 As evident from the table, only for the Miscellaneous Financial Losses Insurance in the last three years the premium earned has been lower than the incurred expenditure. That is why an unexpired risk reserve is determined in addition to the unearned premium reserve of insurances. The calculations for the determination of the reserve are in the table below.

59 Miscellaneous Financial Losses Insurance Indicators Amount Written premiums 34 Unearned premium reserve at the beginning of the period 116 Unearned premium reserve at the end of the period 81 Paid claims 32 Outstanding claims reserve at the beginning of the period 556 Outstanding claims reserve at the end of the period 744 Expenses, including 9 Acquisition (3) Administrative 6 Deferred acquisition costs at the beginning of the period 18 Deferred acquisition costs at the end of the period 12 Gross technical result (160) Correction coefficient of the unearned premium reserve 3.30 Unexpired risk reserve, gross 186 Reinsurer s share _ Unexpired risk reserve, net 186 The adequacy test of the outstanding claims reserve is verification whether the reserve formed is sufficient to cover any expected future cash flows relating to the incurred but not reported as at the end of the financial year claims. The value of expected future payments of outstanding claims is calculated on the basis of the statistics for the claims paid during the last nine years, applying the chain-ladder method. The result is increased by an additional factor (tail factor) for expected payments after the ninth year after the event. The test results are presented in a table and show that the reserves formed by the Company are sufficient to cover any future payments of outstanding claims.

60 Type of insurance Reserve as of 31 December 2013 Current approximate estimate of expected payments Difference Accident 1, Motor Hull 14,291 10,597 3,694 Railroad Vehicles 2 2 _ Aircraft Hul _ Marine Hull 4,241 4,241 _ Cargo in Transit _ Fire and Natural Perils 5,409 3,464 1,945 Property Damage Third Party Liability Related to the Possession and Use of Motor vehicles 94,304 94, Aviation Third Party Liability _ Marine Third Party Liability _ General Third Party Liability 4,383 4,383 _ Credit Insurance _ Guarantee Insurance _ Miscellaneous Financial Losses _ Legal Expenses Insurance _ Travel Assistance _ 125, ,939 6, FINANCIAL RISKS Financial risks relate to adverse changes in interest rates, foreign currency exchange rates between the different currencies and the market price of securities and other financial instruments. Such movements affect the Company s profitability Interest rate risk At all times the Company has exposure to market interest rate fluctuations, which have an effect on its financial position and cash flows. Interest rate margins may vary as a result of changes in market conditions. Interest rates on assets and liabilities denominated in Bulgarian leva are set on the basis of the fluctuations in the base interest rate determined by the Bulgarian National Bank (BNB), whose fluctuations are predictable to a certain extent. The Company continuously monitors the fluctuations of foreign currencies, differences in the interest rates and maturity structure of its assets and liabilities. The Company also currently monitors the changes in the prices and yield of government securities traded. The market risk is actively monitored in order to ensure compliance with the market risk restrictions. The table below summarises the interest rate risk of the Company as of 31 December 2013 and 31 December The assets and liabilities are stated at their book values, grouped according to their interest risk exposure.

61 2013 Effective interest rate, % Three months Six months One year Fixed interest rate Noninterest bearing ASSETS Deposits in financial institutions 4.82% _ 52,013 _ 52,013 Available-for-sale government securities 41,715 _ 41,715 Available-for-sale corporate bonds 4.23% _ 748 _ 8,365 _ 9,113 Available-for-sale equity instruments _ 1,842 1,842 Investments in subsidiaries _ 12,745 12,745 Investments in related companies _ Loans granted 5,484 _ 5,484 Cash 0.1% _ 3, ,264 Cash equivalents 0.3% _ 2,131 _ 2,131 Property, plant and equipment _ 18,661 18,661 Investment property _ 9,041 9,041 Intangible assets _ Reinsurer s share in insurance contract provisions _ 84,842 84,842 Receivables and other assets _ 91,125 91,125 TOTAL ASSETS 748 _ 112, , ,200 LIABILITIES Insurance contract provisions _ 198, ,953 Insurance liabilities _ 3,077 3,077 Reinsurance liabilities _ 7,151 7,151 Reinsurer deposits 2%, 1.16% ,001 8,000 34,992 Deffered tax liabilities _ 1,557 1,557 Prepaid premiums _ 3,874 3,874 Other liabilities _ 6,678 6,678 Equity and reserves _ 75,918 75,918 TOTAL LIABILITIES _ 20,991 6, , ,200 Total

62 2012 Effective interest rate, % Three months Six months One year Fixed interest rate Noninterest bearing ASSETS Deposits in financial institutions 5.26% _ 52,814 _ 52,814 Available-for-sale government securities 35,100 _ 35,100 Available-for-sale corporate bonds 4.53% _ 998 _ 7,226 _ 8,224 Available-for-sale equity instruments _ 2,925 2,925 Investments in subsidiaries _ 12,662 12,662 Investments in related companies _ Loans granted 5,266 _ 5,266 Cash 0.1% _ 3, ,390 Cash equivalents 0.5% _ 8,955 _ 8,955 Property, plant and equipment _ 19,530 19,530 Investment property _ 9,041 9,041 Intangible assets _ Reinsurer s share in insurance contract provisions _ 91,752 91,752 Receivables and other assets _ 108, ,456 TOTAL ASSETS 998 _ 112, , ,597 LIABILITIES Insurance contract provisions _ 219, ,613 Insurance liabilities _ 5,673 5,673 Reinsurance liabilities _ 9,256 9,256 Reinsurer deposits 2%, 2.39% 20,283 7,114 7,757 35,154 Deffered tax liabilities _ 1,573 1,573 Prepaid premiums _ 3,459 3,459 Other liabilities _ 8,324 8,324 Equity and reserves _ 75,545 75,545 TOTAL LIABILITIES _ 20,283 7, , ,597 Total

63 6.2. Currency risk Currency risk is the risk of adverse effects from fluctuation of the prevailing currency exchange rates on the financial position and cash flows of the Company. The management of BULSTRAD VIENNA INSURANCE GROUP has adopted a conservative policy regarding currency risk management and as of 31 December 2013 most of the Company s assets and liabilities are denominated in BGN and EUR. The table below summarises the Company s currency risk exposure as at 31 December 2013 and 31 December It includes the Company s assets and liabilities at book value, depending on whether they are exposed to foreign currency risk. 31 December 2013 BGN and EUR USD Other Total ASSETS Intangible assets Investments in subsidiaries 12,745 12,745 Other investments Investment property 9,041 9,041 Property, plant and equipment 18,661 18,661 Bank deposits with original maturity more than 90 days 52,013 52,013 Available-for-sale financial assets 49,566 3,104 _ 52,670 Loans granted 5,484 5,484 Reinsurer s share of unearned premium reserve 23,382 1, ,515 Reinsurer s share of outstanding claims reserve 56,486 3,841 _ 60,327 Insurance receivables 29,384 6, ,910 Reinsurance receivables 6,906 2, ,501 Other receivables 32,058 32,058 Deferred acquisition costs 13, ,656 Cash and cash equivalents 4, ,395 TOTAL ASSETS 313,350 18, ,200 LIABILITIES Deferred tax liabilities 1,557 1,557 Unearned premium reserve 69,597 3, ,963 Outstanding claims provision 120,922 4, ,990 Insurance liabilities 2, ,077 Reinsurance liabilities 4,533 2, ,151 Reinsurer s deposits 34,992 34,992 Other liabilities 6,678 6,678 Prepaid premiums 3,874 3,874 TOTAL LIABILITIES 245,070 10, ,282 Net currency position 68,280 8,123 (485)

64 31 December 2012 BGN and EUR USD Other Total ASSETS Intangible assets Investments in subsidiaries 12,662 12,662 Other investments Investment property 9,041 9,041 Property, plant and equipment 19,530 19,530 Bank deposits with original maturity more than 90 days 52,814 52,814 Available-for-sale financial assets 43,855 2,394 _ 46,249 Loans granted 5,266 5,266 Reinsurer s share of unearned premium reserve 25, ,169 Reinsurer s share of outstanding claims reserve 60,645 4,938 _ 65,583 Insurance receivables 38,136 5, ,204 Reinsurance receivables 14, ,981 Other receivables 35,215 35,215 Deferred acquisition costs 13, ,056 Cash and cash equivalents 12, ,345 TOTAL ASSETS 342,579 15, ,597 LIABILITIES Deferred tax liabilities 1,573 1,573 Unearned premium reserve 72,304 2, ,110 Outstanding claims provision 140,908 2,207 1, ,503 Insurance liabilities 4, _ 5,673 Reinsurance liabilities 6,974 2, ,256 Reinsurer s deposits 35,154 35,154 Other liabilities 8,324 8,324 Prepaid premiums 2,849 _ 610 3,459 TOTAL LIABILITIES 272,941 7,898 2, ,052 Net currency position 69,638 7,950 (2,043) 6.3. Liquidity risk The liquidity risk is the risk that the Company will encounter difficulty to meet its current and potential obligations as payments become due without incurring losses. The discrepancy in the maturity structure potentially increases profitability, but at the same time it increases the risk of losses. In order to manage the liquidity risk the Company maintains highly liquid assets at any time. The table below provides an analysis of the Company s assets and liabilities as at 31 December 2013 and 31 December 2012, grouped by remaining maturity.

65 2013 Up to one month 1-3 months 3-12 months 1-5 years Over five years Non defined maturity ASSETS Intangible assets _ Investments in subsidiaries _ 12,745 12,745 Other investments _ Investment property _ 9,041 9,041 Property, plant and equipment _ 18,661 18,661 Bank deposits with original maturity more than 90 days 2 52,011 52,013 Available-for-sale financial assets ,586 38,494 1,842 52,670 Loans granted 5,484 _ 5,484 Reinsurer s share of unearned premium reserve 799 1,598 7,191 12,497 2,430 _ 24,515 Reinsurer s share of outstanding claims reserve 2,105 4,210 18,946 29,672 5,394 _ 60,327 Insurance receivables 10,012 10,021 15, ,910 Reinsurance receivables 9,501 _ 9,501 Other receivables 20,338 11,720 32,058 Deferred acquisition costs 1,138 2,276 10,242 _ 13,656 Cash and cash equivalents 5,395 _ 5,395 TOTAL ASSETS 49,288 18,105 58, ,833 46,318 54, ,200 LIABILITIES Deferred tax liabilities _ 1,557 1,557 Unearned premium reserve, including unexpired risk provision 2,378 4,756 21,403 37,193 7,233 _ 72,963 Outstanding claims provision 4,396 8,793 39,568 61,967 11,266 _ 125,990 Reinsurer s deposits 34,992 _ 34,992 Insurance liabilities 1, _ 3,077 Reinsurance liabilities 7,151 _ 7,151 Other liabilities 3,162 _ 2,391 1,125 6,678 Prepaid premiums 3,874 _ 3,874 TOTAL LIABILITES 22,808 14,027 99, ,717 18,499 1, ,282 Maturity mismatching 26,480 4,078 (40,683) 5,116 27,819 53,108 Total

66 2012 Up to one month 1-3 months 3-12 months 1-5 years Over five years Non defined maturity ASSETS Intangible assets _ Investments in subsidiaries _ 12,662 12,662 Other investments _ Investment property _ 9,041 9,041 Property, plant and equipment _ 19,530 19,530 Bank deposits with original maturity more than 90 days 2 52,812 52,814 Available-for-sale financial assets _ 3,950 6,314 12,665 20,395 2,925 46,249 Loans granted 5,266 _ 5,266 Reinsurer s share of unearned premium reserve 898 1,796 8,082 13,073 2,320 _ 26,169 Reinsurer s share of outstanding claims reserve 2,257 4,515 20,315 30,769 7,727 _ 65,583 Insurance receivables 20,092 9,259 10,340 4,513 44,204 Reinsurance receivables 14,981 _ 14,981 Other receivables 23,590 11,625 35,215 Deferred acquisition costs 1,171 2,343 10,542 _ 14,056 Cash and cash equivalents 3,390 8,955 12,345 TOTAL ASSETS 66,379 30,818 60, ,832 30,442 56, ,597 LIABILITIES Deferred tax liabilities _ 1,573 1,573 Unearned premium reserve, including unexpired risk reserve 2,577 5,155 23,196 37,521 6,661 _ 75,110 Outstanding claims reserve 4,974 9,947 44,762 67,794 17,026 _ 144,503 Reinsurer s deposits 35,154 _ 35,154 Insurance liabilities 3, ,673 Reinsurance liabilities 9,256 _ 9,256 Other liabilities 3,273 _ 1,755 3,296 8,324 Prepaid premiums 3, ,459 TOTAL LIABILITES 26,911 16, , ,305 23,687 3, ,052 Total Maturity mismatching 39,468 14,788 (44,962) 6,527 6,755 52, Credit risk Credit risk is the risk that the customers may not be able to fully repay the amounts owed to the Company when they become due. The Company might not be able to collect all its receivables on already underwritten insurance contracts for which it bears the risk from occurrence of an insured event. In this case the Company undertakes actions for voluntary collection of receivables. Unless the receivables could be collected in a certain period of time, the insurance contract is unilaterally terminated by the Company.

67 The table below summarises the Company s assets according to the credit ratings of the counterparties where the financial assets are placed as of 31 December 2013 and 31 December Assets with credit risk AA+ AA-BBB Less than BBB Not rated Total Bank deposits with original maturity more than 90 days _ 31,479 20,534 _ 52,013 Debt securities 15,615 28,705 2,995 3,513 50,828 Loans granted _ 5,484 5,484 Insurance receivables _ 35,910 35,910 Reinsurance receivables, including reinsurer s share in insurance contract provisions 80,909 7,358 _ 6,076 94,343 Other receivables _ 32,058 32,058 Cash and cash equivalents in banks _ 3,015 2,212 _ 5,227 Total assets with credit risk 96,524 70,557 25,741 83, ,863 Assets without credit risk _ 56,337 56,337 TOTAL ASSETS 96,524 70,557 25, , , Assets with credit risk AA+ AA-BBB Less than BBB Not rated Total Bank deposits with original maturity more than 90 days _ 32,785 20,029 _ 52,814 Debt securities 14,789 21,783 6,752 _ 43,324 Loans granted _ 5,266 5,266 Insurance receivables _ 44,204 44,204 Reinsurance receivables, including reinsurer s share in insurance contract provisions 93,882 8,372 _ 4, ,733 Other receivables _ 35,215 35,215 Cash and cash equivalents in banks _ 3,076 9,040 _ 12,116 Total assets with credit risk 108,671 66,016 35,821 89, ,672 Assets without credit risk _ 58,925 58,925 TOTAL ASSETS 108,671 66,016 35, , ,597 Exposures to government debt This note summarises the Company s exposure to higher-risk eurozone countries. The Company regards a eurozone country as higher-risk when the country exhibits higher volatility and economic and political uncertainties than other eurozone members. The specific factors that are taken into account in making this assessment include the ratio of sovereign debt to GDP, seeking international financial assistance, credit ratings, levels of market yields and concentrations of maturities. The Company manages this risk carefully during the year and as a result, overall, debt portfolio is good. The table below show the book value of the state debt portfolio per country. The assets are presented without accounting for any possible impairments. The Company has not

68 recognized impairment concerning exposure classified as available for sale as of 31 December 2013 and 31 December Up to one month From one to three months From three months to one year From one to three years From three to five years Above five years Issuing state Bulgaria _ 395 4,659 20,908 25,962 Germany _ 1,196 1,951 10,011 13,158 EU financial institutions 499 _ 499 France _ Austria _ The Netherlands Total _ 1,591 7,569 32,417 41,577 Total 2012 Up to one month From one to three months From three months to one year From one to three years From three to five years Above five years Issuing state Bulgaria _ 975 4,037 9,838 14,850 Germany 3,589 _ 4,110 2,741 10,440 EU financial institutions 2, ,420 France 2,871 _ 2,871 Poland _ 1,984 1,984 Netherlands _ Slovakia _ 1,134 1,134 Total 8, ,147 16,173 33,888 Total

69 7. INTANGIBLE ASSETS Software Licenses Total Cost As at 1 January , ,740 Additions (including from merger) 151 _ 151 Disposals _ Balance as at 31 December , ,891 Cost As at 1 January , ,891 Additions _ Disposals _ Balance as at 31 December , ,891 Accumulated amortization As at 1 January , ,933 Additions (including merged assets) Disposals _ Balance as at 31 December , ,502 Accumulated amortization As at 1 January , ,502 Additions Disposals _ Balance as at 31 December , ,760 Carrying amount as at 31 December December

70 8. INVESTMENTS IN SUBSIDIARIES EIRB, London VIG Services Bulgaria Bulstrad Life VIG ZOD Bulstrad Health VIG Contact Center Bulgaria 31 December ,567 3, ,288 Percentage of participation 85% 100% 95.11% 97% 50% Capital contributions _ December ,567 3, ,662 Capital contributions _ 83 _ 83 Merger of ZOD Bulstrad Health into Bulstrad Life VIG 3,155 (3,155) 31 December ,722 _ ,745 Percentage of participation 85% 100% 95.53% _ 50% During the reporting period ZAD BULSTRAD VIENNA INSURANCE GROUP and the Bulgarian Industrial Association _ Union of the Bulgarian Business concluded a contract for a purchase by ZAD BULSTRAD VIENNA INSURANCE GROUP of 6,000 (six thousand) ordinary registered voting shares, with a nominal value of BGN 10 (ten) each, comprising 3% of the capital of the Health Insurance Company Bulstrad Health AD. After this purchase, ZAD BULSTRAD VIENNA INSURANCE GROUP became the sole owner of the capital of ZOD Bulstrad Health. The price of the shares amounted to BGN íà 82,916 (eighty-two nine hundred and sixteen). After the acquisition, the total value of the investment of ZAD BULSTRAD VIENNA INSURANCE GROUP in the capital of ZOD Bulstrad AD amounts to BGN 3,155 thousand. In order to bring the activities of ZOD Bulstrad Health EAD in accordance with the requirements of the Law on Health Insurance and with a view to the options for this provided under 31 in connection with 29 of the Transitional and final provisions to the Law on amendment and supplement of the Law on Health Insurance, it was decided to start the procedure for transformation through a merger of ZOD Bulstrad Health EAD into Bulstrad Life Vienna Insurance Group. On 19 June 2013 a contract was concluded for a merger under the form required by law. According to the contract for the merger, pursuant to Art. 263(g) (letter æ ), para 2 of the Commercial Law, for accounting purposes the date of 1 October 2013 is the moment when the actions of the merged company (ZOD Bulstrad Health) are deemed to be carried out on the account of the receiving company (ZAD Bulstrad Life Vienna Insurance Group). The procedure for transformation of the Company was finalized in December 2013, and the merger was registered in the Commercial Register on 25 December As a result of the transformation, the share capital of ZAD Bulstrad Life Vienna Insurance Group increased with BGN 735,727, through the issuance of 735,727 new ordinary registered dematerialized voting shares, with a nominal value of BGN 1 each. In this way on 25 December 2013 the share capital of ZAD Bulstrad Life Vienna Insurance Group became BGN 8,635,747, distributed into 8,635,747 ordinary registered dematerialized voting shares with a nominal value of BGN 1 each, and the share of ZAD BULSTRAD VIENNA INSURANCE GROUP in the share capital of ZAD Bulstrad Life Vienna Insurance Group changed from 95.11% to 95.53%. The legal finalization of the sale of the shares of Bulgarski Imoti Assistance EOOD (subsidiary of the merging enitity ZK Bulgarski Imoti AD) to VIG Properties Bulgaria AD was completed in For the purposes of these annual Separate Annual Financial Statements and their preparation, it has been taken into account, in compliance with Preliminary Total

71 Contract for the sale of Company s shares dated 29 March 2012 between ZK Bulgarski Imoti AD and VIG Properties Bulgaria AD, that the risks and rewards arising from the right to ownership are deemed transferred from ZK Bulgarski Imoti AD to VIG Properties Bulgaria AD as of the date the contract is signed. 9. OTHER EQUITY INVESTMENTS 31 December Other investments INVESTMENT PROPERTY As of 1 January 9,041 8,977 Additions (including from merger) _ 64 Change in fair value As of 31 December 9,041 9,041 As a result of the merger dated 13 November 2012, the Company became a legal successor of all assets and liabilities owned by the merging entity ZK Bulgarski Imoti, thus ZAD BULSTRAD VIENNA INSURANCE GROUP acquired investment property for BGN 64 thousand. As of 31 December 2013, an independent appraisor carried out market valuation of investment property owned by the Company. As a result of revaluation, based on valuation report from the licensed appraisor impairment it was found that there is no significant difference between the fair value of investment properties and their value in the annual financial statements. Fair value hierarchy The fair value of investment property amounting BGN 9,041 thousand is classified as fair value Level 3, on the basis of the input data used in the valuation technique whose characteristics are presented in Note 11.

72 11. PROPERTY, PLANT AND EQUIPMENT Land and buildings Vehicles Computers Furniture and equipment Total Cost As at 1 January ,138 1,151 3,480 6,383 Additions (including from merger) _ ,823 Disposals _ (955) (83) (197) (1,235) Balance as at 31 December ,138 1,615 3,604 6,971 Cost As at 1 January ,138 1,615 3,604 6,971 Additions _ Disposals _ (246) (105) (267) (618) Balance as at 31 December ,024 1,867 3,643 7,148 Accumulated amortization As at 1 January 2012 _ ,653 4,094 Additions (including merged assets) ,292 Disposals _ (545) (1) (135) (681) Balance as at 31 December ,243 2,906 5,705 Accumulated amortization As at 1 January ,243 2,906 5,705 Additions ,194 Disposals _ (139) _ (9) (148) Balance as at 31 December , ,429 3,134 6,751 Revaluation reserve As at 1 January ,264 _ 18,264 Additions _ Disposals _ Balance as at 31 December ,264 _ 18,264 Revaluation reserve As at 1 January ,264 _ 18,264 Additions _ Disposals _ Balance as at 31 December ,264 _ 18,264 Book value As at 31 December , ,530 As at 31 December , ,661 As to 31 December 2013, a market valuation of the real estate, property of the Company, was performed by a specialized entity (independent appraiser). As a result of the assessment based on the valuation report from the licensed independent assessor,

73 it is established that there is no substantial difference between the fair value of the real estate and its value in the Annual Financial Report. The fair value of the buildings is determined by external, independent property appraisers, with recognized professional qualifications and recent experience in appraisal of properties with location and category similar to the ones under the valuation. The buildings fair value is classified as fair value under Level 3, on the basis of the input data for the used valuation technique. Valuation technique The valuation model is based on three standard methods: cost method, profit method and comparative method. The property s fair value is the sum of the weighted values defined by the different methods, as follows: Cost value: 5%. Profit value: 35%. Comparative value: 60%. The cost method is the least sensitive to the market and its fluctuations, and thus it carries the lowest relative weight. The profit method shows the value of the appraised units under conditions of stable market and rental relations. The comparative method delivers an actual market price per square meter of the sites, based on average, proximate in time, prices of comparable sites. These prices are adjusted with a coefficient which takes into account the advantages and disadvantages of the appraised sites, in comparison to their market analogs. For this reason, this method is given the greatest relative weight in the model. Significant unobservable input data 1. Costs for management of the property as a percentage of its gross annual income. 2. Rate of return of the property. 3. Adjustment coefficients with respect to analogous market transactions. Relationship between key unobservable inputs and the fair value The determined fair value will increase (decrease) if: the percentage of the management costs is lower (higher); the rates of return drop (increase); the adjustment coefficients increase (decrease). During the current reporting period the Company used fixed assets, fully depreciated as at the reporting date, with a carrying amount and accumulated depreciation of BGN 6,369 thousand (BGN 7,771 thousand for 2012). The Company has no assets that are under pledge or are with burdens on them. 12. BANK DEPOSITS 31 December In BGN 43,896 48,821 In foreign currency 8,117 3,993 52,013 52,814 Deposits amount includes accrued interest of BGN 1,600 thousand (BGN 2,051 thousand for 2012).

74 13. AVAILABLE-FOR-SALE FINANCIAL ASSETS 31 December Bulgarian government securities 25,962 16,983 Foreign government securities 15,615 16,905 Municipal bonds 138 1,212 Corporate bonds 9,113 8,224 Shares 1,842 2,925 52,670 46, LOANS GRANTED As of 31 December 2013 ZAD BULSTRAD VIENNA INSURANCE GROUP has receivables under a loan provided to its related party Bulgarski Imoti Assistance EOOD amounting to BGN 5,484 thousand (BGN 5,266 thousand for 2012), including a principal of BGN 3,118 thousand and an interest of BGN 2,366 thousand (BGN 2,148 thousand for 2012). The maturity date of the loan is 12 December 2014, and the annual interest for 2013 is 7%. 15. INSURANCE RECEIVABLES 31 December Insurance receivables 38,303 51,639 Impairment (2,393) (7,435) 35,910 44,204 As at 31 December 2013 there are no encumbrances on receivables and no pledged receivables. 16. REINSURANCE RECEIVABLES 31 December Receivables from reinsurer s share in claims 4,318 12,012 Receivables from insurance premiums 5,183 2,969 9,501 14,981

75 17. OTHER RECEIVABLES 31 December Recourse receivables 31,106 29,565 Prepaid expenses Guarantees 3,161 2,962 Receivables from intermediary services Court receivables Advances to suppliers Receivables from customers 2 38 Receivables from securities 4,687 4,791 Other 2,405 2,281 Impairment of recourse receivables (10,768) (5,975) Impairment of receivables from securities (260) (294) 32,058 35,215 As at 31 December 2013 the Company classifies as receivables from guarantees the sums related to the participation in public procurements as well as a blocked deposit with Unicredit Bulbank AD, placed as a collateral to a guarantee issued in favour of the National Bureau of Bulgarian Motor Insurers. 18. DEFERRED ACQUISITION COSTS À) As at 31 December December 2012 Gross Reinsurer s share Net Gross Reinsurer s share Net Motor Insurance 10, ,815 11, ,175 Cargo, Aviation and Marine Insurance Property Insurance 3,440 1,719 1,721 3,413 1,697 1,716 Other 1, ,006 1, ,044 Total 15,930 2,274 13,656 16,406 2,350 14,056 B) Change in deferred acquisition costs Gross Reinsurer s share Net Gross Reinsurer s share Net Balance as at 1 January 16,406 2,350 14,056 12,572 1,344 11,228 Accrued for the period 15,930 2,274 13,656 16,406 2,350 14,056 Released for the period (16,406) (2,350) (14,056) (12,572) (1,344) (11,228) Change, net (476) (76) (400) 3,834 1,006 2,828 Balance as at 31 December 15,930 2,274 13,656 16,406 2,350 14,056

76 As a result of the merger of ZK Bulgarski Imoti AD in ZAD BULSTRAD VIENNA INSURANCE GROUP, all assets and liabilities of ZK Bulgarski Imoti AD are acquired by ZAD BULSTRAD VIENNA INSURANCE GROUP; because of this, the change in deferred acquisition costs calculated as a difference between the book values at the beginning and end of 2012 does not correspond to the change in Income Statement for CASH AND CASH EQUIVALENTS 31 December Cash on hand and current accounts 3,264 3,390 Bank deposits under 90 days 2,131 8,955 5,395 12,345 In foreign currency 2,666 1,756 In BGN 2,729 10,589 5,395 12,345 The amount of deposits does include interest accrued for In 2012 the total amount of on deposits under 90 days is BGN 1 thousand. 20. EQUITY The table below shows the structure of share capital as at 31 December Shareholder Percentage of participation TBI Bulgaria AD 85.18% Vienna Insurance Group Wiener Versicherung Gruppe 12.82% Other 2.00% In November 2012 the procedure of transformation through merger of ZK Bulgarski Imoti AD in ZAD BULSTRAD VIENNA INSURANCE GROUP finished. On 13 November 2012 the merger was entered in the Commercial Regsiter, the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP was increased by BGN 4,039,160 (four million, thirty-nine thousand, one hundred and sixty), by issuance of 403,916 (four hundred and three thousand, nine hundred and sixteen) new ordinary registered voting shares of nominal value BGN 10 (ten) each. Thus, on 13 November 2012 the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP was BGN 31,474,580 (thirty-one million, four hundred seventy-four thousand, five hundred and eighty), distributed in 3,147,458 ordinary registered voting shares of nominal value BGN 10 (ten) each. As a result of the merger, as of 31 December 2012 the share of TBI Bulgaria AD in the share capital of the Company dropped from 97.72% to 85.18%, Vienna Insurance Group Wiener Versicherung Gruppe acquired direct share in the capital amounting to 12.82% and indirect share amounting to 85.18% of the share capital of ZAD BULSTRAD VIENNA INSURANCE GROUP by holding 100% of the share capital of TBI Bulgaria AD. No change of the amount of share capital of the Company occurred in 2013.

77 21. UNEARNED PREMIUM RESERVE À) As at 31 December December 2012 Gross Reinsurer s share Net Gross Reinsurer s share Net Motor Insurance 49,120 8,990 40,130 50,164 9,676 40,488 Cargo, Aviation and Marine Insurance 2,666 1, ,815 3, Property Insurance 14,007 10,955 3,052 13,825 10,428 3,397 Other 7,170 2,705 4,465 7,306 3,006 4,300 Total 72,963 24,515 48,448 75,110 26,169 48,941 The gross amount of unearned premium reserve for Other Insurance includes BGN 186 thousand (BGN 1,254 thousand under Motor Insurance for 2012) for unexpired risk reserve. B) Change in the unearned premium provision Gross Reinsurer s share Net Gross Reinsurer s share Net As at 1 January 75,110 26,169 48,941 56,209 17,742 38,467 Accrued for the period 72,963 24,515 48,448 75,110 26,169 48,941 Released for the period (75,110) (26,169) (48,941) (56,209) (17,742) (38,467) Change, net (2,147) (1,654) (493) 18,901 8,427 10,474 As at 31 December 72,963 24,515 48,448 75,110 26,169 48,941 As a result of the merger of ZK Bulgarski Imoti AD in ZAD BULSTRAD VIENNA INSURANCE GROUP, all assets and liabilities of ZK Bulgarski Imoti AD are acquired by ZAD BULSTRAD VIENNA INSURANCE GROUP; because of this, the change in unearned premium reserve calculated as a difference between the book values at the beginning and end of 2012 does not correspond to the change as per Income Statement for OUTSTANDING CLAIMS PROVISION À) As at Gross 31 December December 2012 Reinsurer s share Net Gross Reinsurer s share Reserve for reported, but not settled claims (RBNS) 98,360 42,119 56, ,433 43,829 65,604 Reserve for incurred, but not reported claims (IBNR) 27,630 18,208 9,422 35,070 21,754 13,316 Total 125,990 60,327 65, ,503 65,583 78,920 Net

78 B) Change Gross Reinsurer s share Net Gross Reinsurer s share Net As at 1 January 144,503 65,583 78, ,608 45,322 66,286 Accrued for the period 125,990 60,327 65, ,503 65,583 78,920 Released for the period (144,503) (65,583) (78,920) (111,608) (45,322) (66,286) Change, net (18,513) (5,256) (13,257) 32,895 20,261 12,634 As at 31 December 125,990 60,327 65, ,503 65,583 78,920 As a result of the merger of ZK Bulgarski Imoti AD in ZAD BULSTRAD VIENNA INSURANCE GROUP, all assets and liabilities of ZK Bulgarski Imoti AD are acquired by ZAD BULSTRAD VIENNA INSURANCE GROUP; because of this, the change in outstanding claims reserve calculated as a difference between the book values at the beginning and end of 2012 does not correspond to the change as per the Income Statement for DEFERRED TAX À) As at Assets Liabilities Net assets/ (liabilities) Investment property (557) (557) Land and buildings 1,417 1,417 (1,417) (1,417) Fixed assets impairment Fixed assets depreciation Unused leaves and retirement provisions Civil contracts payables Net tax (assets)/liabilities ,974 1,974 (1,557) (1,573) B) Change in deferred tax Change in Other 2012 Comprehensive Income Change in the Income Statement 2013 Investment property (557) (557) Land and buildings (1,417) (1,417) Fixed assets impairment Fixed assets depreciation 179 _ Unused leaves and retirement provisions Civil contracts payables 132 _ (31) 101 Net tax (assets)/liabilities (1,573) 3 13 (1,557)

79 24. INSURANCE LIABILITIES 31 December Insurance payables 1,369 1,586 Commissions payables 1,708 4,087 3,077 5, REINSURANCE LIABILITIES 31 December Ceded premium payables 6,540 8,601 Commissions payables ,151 9, OTHER LIABILITIES 31 December Guarantee fund payables Liabilities related to the acquisition of subsidiaries 393 1,285 Personnel payables Provisions for pensions and paid leaves Liabilities to suppliers 546 1,042 Tax liabilities 1,082 1,520 Social security liabilities Liabilities under finance lease Other liabilities 2,638 2,472 6,678 8,324 Other Liabilities include a liability to the related party VIG Properties at the amount of BGN 1,755 thousand. Liabilities under defined benefit pension plans The Company has an obligation to pay benefits in case when its employees retire in accordance with the requirements of Art. 222, 3 of the Bulgarian Labor Code (LC). According to these provisions of LC, at the termination of the employment contract of an employee who has reached the right to a pension, the employer shall pay to him/her benefits at the amount of two monthly gross salaries. In case the employee or officer has gained employment experience of 10 years or more to the date of retirement, these benefits shall amount to six monthly gross salaries. The approximate amount of the liabilities for defined benefit pension plans for each reporting period and the costs recognized in profit and losses are based on actuarial reports (the information on the applied parameters and assumptions is provided below). The defined benefit plan (liability for payment of benefits at retirement) is not financed.

80 2013 Current value of the liabilities as of 1 January 384 Paid amounts _ Costs for current services 147 Interest costs 38 Actuarial (gains)/losses from changes to demographic and financial assumptions 25 Current amount of the liabilities as of 31 December 594 Actuarial assumptions The main actuarial assumptions as on the date of the report (presented as average values) are presented as follows: 2013 Growth of gross labor remuneration 0% Interest rate 3.65% Discount rate 2.85% As of 31 December 2013 the Company has entered into four financial lease contracts. The main characteristics of the contracts are as follows: Effective interest rate Present value of lease payments Minimum lease payments Lessor Maturity Leased asset Computers and other TBI Leasing EAD 20 December % technical equipment TBI Leasing EAD 20 June % Computers The maturity structure of the liabilities under finance lease is as follows: Present value of lease payments Minimum lease payments Up to one year Between one and five years The Management believes that there is reasonable certainty that the Company will obtain ownership of the leased assets by the end of the lease terms, therefore the leased assets are depreciated over their useful lives. The depreciation policy for leased assets is consistent with that for depreciable assets owned by the Company. 27. PREPAID PREMIUMS 31 December Prepaid premiums (including Motor Third Party Liability) 3,874 3,459 3,874 3,459

81 28. WRITTEN PREMIUMS Gross written premium Ceded premium Net written premium Gross written premium Ceded premium Net written premium Motor Insurance 102,095 (25,073) 77,022 99,738 (23,528) 76,210 Cargo, Aviation and Marine Insurance 15,700 (8,734) 6,966 15,557 (10,196) 5,361 Property Insurance 38,522 (23,421) 15,101 32,352 (18,172) 14,180 Other 16,351 (7,710) 8,641 16,506 (7,785) 8,721 Total 172, 668 (64,938) 107, ,153 (59,681) 104, REINSURANCE COMMISSIONS AND PROFIT SHARING Profit sharing 5,489 4,813 Reinsurance commissions 15,941 11,328 21,430 16, NET INVESTMENT INCOME Interest income on bank deposits and cash equivalents 2,617 2,633 Interests and dividend income on available-for-sale financial assets 1,757 1,811 Dividend income from subsidiaries and other share participation 1, Realized gains/(losses) from transactions with available-for-sale financial assets 546 1,769 Impairment of available-for-sale financial assets 34 (294) Foreign exchange gains/(losses) (127) (102) Assets management fees (263) (351) Rental income from investment property ,254 6,216 Dividend income from subsidiaries and other share participations include dividend income from the subsidiary Bulstrad Life VIG AD at the amount of BGN 891 thousand and EIRB London at the amount of BGN 694 thousand. 31. OTHER TECHNICAL INCOME, NET OF REINSURANCE Income from written-off liabilities under terminated insurance contracts FX gains/(losses) from revaluation of insurance receivables/payables Income from coinsurance intermediary services Interest income from insurance operations Reversed impairment losses 1 4 Salvage income ,612 1,527

82 32. OTHER INCOME Income from sale of fixed assets _ 32 Income from sale of services _ 22 Rental income Income from penalties received 1 1 Other Rental income includes rental income from intangible assets for the amount of BGN 230 thousand of the acquiree ZK Bulgarski Imoti until the date of the merger and rental income from assets rented by VIG Services Bulgaria EOOD at the amount of BGN 1 thousand. In 2013 there was a reported income from assets rented out to VIG Service Bulgaria EOOD at the amount of BGN 3 thousand. 33. CLAIMS PAID Gross claims paid Reinsurer s share Net claims paid Gross claims paid Reinsurer s share Net claims paid Motor Insurance (95,277) 24,329 (70,948) (75,818) 18,602 (57,216) Cargo, Aviation and Marine Insurance (5,905) 1,710 (4,195) (2,082) 142 (1,940) Property Insurance (6,659) 3,570 (3,089) (10,711) 6,737 (3,974) Other (5,040) 1,024 (4,016) (4,726) 648 (4,078) Total (112,881) 30,633 (82,248) (93,337) 26,129 (67,208) 34. ACQUISITION COSTS Commissions paid (24,717) (25,350) Other acquisition costs (5,195) (4,131) (29,912) (29,481) 35. ADMINISTRATIVE EXPENSES Salaries expense (9,328) (9,207) Office maintenance (4,203) (4,167) Advertising (700) (660) Depreciation (1,452) (1,639) External professional services, including audit fees (425) (502) Bank charges (301) (293) Written-off receivables (33) _ Other (696) (1,280) (17,138) (17,748)

83 In 2013 the Company s Management received remuneration at the amount of BGN 852 thousand (BGN 597 thousand in 2012), included in the caption Salaries expense. The item External professional services includes BGN 232 thousand (BGN 323 thousand in 2012) for consultancy services. 36. OTHER TECHNICAL EXPENSES Written-off insurance receivables (18,018) (4,984) Impairment expense on insurance receivables 2,908 (2,701) Guarantee fund fees and other taxes and charges (75) (69) Loss on currency revaluation of insurance receivables/payables (1,109) (1,118) Other technical expenses (176) (418) (16,470) (9,290) 37. OTHER NON-TECHNICAL EXPENSES Impairment expenses and written-off guarantees _ (145) Expenses on written-off of assets (62) _ Impairment expenses on receivables (2,953) (1,622) Interest expenses under finance leases (9) (20) (3,024) (1,787) 38. INCOME TAX Profit before taxes 1, Conversion of the profit for tax purposes, including (3,557) (326) Increases 3,206 5,879 Decreases (6,763) (6,205) Profit after conversion for tax purposes, gross (1,954) 276 Tax loss deduction _ (276) Profit after conversion for tax purposes, net (1,954) _ Tax rate 10% 10% Income tax Deferred tax Profit after taxes 1, Effective tax rate 0.8% 14.5% Unrecognized deferred tax assets In 2010 a tax loss amounting to BGN 28,622 thousand was reported, and the Company deducted thereof the amounts of BGN 3,202 thousand in 2011 and BGN 276 thousand in A new tax loss amounting to BGN 1,954 thousand is reported for the current reporting period. Deferred tax assets are not recognized in respect to the occurred tax loss, because it is not likely that there will be future taxable profit against which the company will be able to use these assets.

84 39. BASIC EARNINGS PER SHARE Number of shares at the beginning of the period 3,147,458 2,743,542 Number of shares at the end of the period 3,147,458 3,147,458 Average number of shares for the period 3,147,458 2,796,660 Financial result for the period 1, Basic earnings per share, BGN

85 40. RELATED PARTIES Related party Receivables Payables Income Expenses Type of transaction Bulstrad Health VIG Services Bulgaria EOOD Bulstrad Life VIG Bulgarski Imoti Assistance EOOD VIG Contact Centre Bulgaria AD TBI Asset Management TBI Info AD POK Doverie _ 34 Additional health insurance _ personnel 47 _ Office rent _ Commissions for insurance 13 _ 13 intermediation Reinvoicing of expenses _ 1 _ utilities _ Acquisition services under 43 _ 360 contract _ Under agreement for claims 64 _ 1,685 handling services Administrative expenses/ 4 71 income 2 _ 71 _ Under insurance contracts Payables under share _ acquisition of Bulstrad Health 393 share capital _ Expenses for Life insurance _ 91 _ 144 personnel Under insurance contracts 891 _ Income from dividend 5,484 _ 218 _ Loan granted and interest income _ 22 _ 101 Administrative expenses Under agreement for claims _ 235 handling services 20 _ Income from rent _ 38 _ 200 Asset management 2 2 Under insurance contracts _ 144 Software maintenance 2 _ Under insurance contracts 4 _ Insurance contracts

86 Continued Related party Receivables Payables Income Expenses Type of transaction Vienna Insurance Group Wiener Staedtische Versicherung Donau Versicherung EIRB, London Compensa VIG VIG RE Bulstrad Labour Medicine VIG Properties Services under contract _ 105 _ administrative Reinsurance contract (reinsurance reserves and _ 34,992 _ 449 interest) 4, ,861 22,391 Reinsurance contract _ Reinsurance contract 6 _ Reinsurance contract 239 2,674 6,591 13,311 Reinsurance contract 694 _ Income from dividends _ 3 Reinsurance contract 39 1,161 4,554 6,961 Reinsurance contract _ 3 _ 11 Contract for labour medicine _ 1,755 Liability Key personnel _ 852 _ 25 _ 11 Total 10,375 41,987 45,801 47,117 Remuneration for personnel under management contracts Social securities for personnel under management contracts Additional pension insurance for personnel under management contracts 41. SUBSEQUENT EVENTS From the preparation date till the approval date of the Annual Financial Statements no significant events have occurred, which require adjustments or disclosure in the Financial Statements.

87 ANNUAL REPORT 2013 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR 2013

88 ANNUAL REPORT 2013 STRUCTURE OF THE GROUP STRUCTURE OF GROUP ZAD BULSTRAD VIENNA INSURANCE GROUP As of 31 December 2013 ZAD BULSTRAD VIENNA INSURANCE GROUP (the parent company) controls directly or indirectly through other companies the following subsidiaries: Voting rights, % Participation in the result, % Relationship EIRB London OOD Direct control EIRB Broker Russia Indirect control EIRB Agent Russia Indirect control VIG Services Bulgaria EOOD Direct control ZAD Bulstrad Life Vienna Insurance Group AD Direct control AISMPMC Bulstrad Health OOD Indirect control Bulstrad Labour Medicine EOOD Indirect control Vienna Insurance Group Contact Centre Bulgaria AD Direct control The parent company along with its subsidiaries forms group ZAD BULSTRAD VIENNA INSURANCE GROUP (the Group). In 2012, through the subsidiary EIRB London OOD ZAD BULSTRAD VIENNA INSURANCE GROUP acquired 43.35% of the control in the following companies in Russia: EIRB Broker and EIRB Agent. The companies are deemed subsidiaries as ZAD BULSTRAD VIENNA INSURANCE GROUP controls the financial and operational policy through representatives in their management bodies.

89 ANNUAL REPORT 2013 AUDITORS REPORT KPMG Bulgaria OOD 45/À Bulgaria Boulevard Sofia 1404 Bulgaria Òålephone +359 (2) Telefax +359 (2) Å-mail Internet kpmg.com/bg INDEPENDENT AUDITORS REPORT To the shareholders of ZAD BULSTRAD VIENNA INSURANCE GROUP Report on the Consolidated Financial Statements We have audited the accompanying Consolidated Financial Statements of ZAD BULSTRAD VIENNA INSURANCE GROUP (the Company), which comprise the Consolidated Statement of Financial Position as at 31 December 2013, the Consolidated Statements of Profit or Loss, Comprehensive Income, Changes in Equity and Cash Flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these Consolidated Financial Statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as Management determines is necessary to enable the preparation of Consolidated Financial Statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Consolidated Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Financial Statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the Consolidated Financial Statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the Consolidated Financial Statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Consolidated Financial Statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the Consolidated Financial Statements give a true and fair view of the consolidated financial position of the Company as at 31 December 2013, and of its consolidated financial performance and its consolidated cash flows for the year then

90 ended in accordance with International Financial Reporting Standards as adopted by the European Union. Report on other legal and regulatory requirements Annual Report of the activities of the Company prepared in accordance with the requirements of article 33 of the Accountancy Act As required under the Accountancy Act, we report that the historical financial information disclosed in the Consolidated Annual Report of the activities of the Company, prepared by Management as required under article 33 of the Accountancy Act, is consistent, in all material aspects, with the consolidated financial information disclosed in the audited Consolidated Financial Statements of the Company as of and for the year ended 31 December Management is responsible for the preparation of the Consolidated Annual Report of the activities of the Company which was approved by the Management Board of the Company on 18 March Dobrina Kaloyanova Authorised Representative Margarita Goleva Registered Auditor KPMG Bulgaria OOD Sofia, 18 March 2014 Krassimir Hadjidinev Registered Auditor KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Registered with the Commercial Register at the Bulgarian Registry Agency Identity Code IBAN BG06 RZBB BIC RZBBBGSF RaiffeisenBank (Bulgaria) EAD

91 ANNUAL REPORT 2013 CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated) Note 31 December December 2012 ASSETS Intangible assets Other equity investments Investment property 11 9,586 9,815 Property, plant and equipment 12 23,293 24,645 Financial assets 171, ,199 Bank deposits with original maturity over 90 days 13 75,229 74,031 Available-for-sale financial assets 14 87,310 71,180 Loans granted 15 8,740 7,988 Reinsurer s share of 88,170 93,299 _ Unearned premium provision 22 25,181 26,299 _ Outstanding claims provision 23 62,774 66,812 _ Mathematical reserve Insurance and reinsurance receivables 62,597 72,686 Insurance and health insurance receivables 16 44,862 52,871 Reinsurance receivables 17 17,735 19,815 Other receivables 18 33,399 36,287 Deferred acquisition costs 19 26,993 22,941 Cash and cash equivalents 20 9,593 19,967 TOTAL ASSETS 425, ,517

92 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated) Continued Note 31 December December 2012 EQUITY AND LIABILITIES Equity 21 75,285 76,091 Share capital and share premium 66,092 66,092 Retained earnings (9,209) (9,414) Reserves 18,402 19,413 Non-controlling interest Gross insurance provisions 277, ,159 Unearned premiums provision, including 22 82,538 78,808 _ Unexpired risk provision 186 1,261 Outstanding claims provision , ,707 Mathematical reserve 24 57,206 49,147 Other provisions 25 3,955 4,497 Deferred tax liabilities, net 26 1,505 1,591 Reinsurer s deposits 35,835 35,530 Insurance and reinsurance liabilities 21,006 23,413 Insurance and health insurance liabilities 27 4,536 7,120 Reinsurance liabilities 28 16,470 16,293 Other liabilities 29 8,590 8,805 Prepaid premiums 30 5,153 4,074 TOTAL EQUITY AND LIABILITIES 425, ,517 The Consolidated Statement of Financial Position is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor

93 ANNUAL REPORT 2013 CONSOLIDATED STATEMENT OF PROFIT OR LOSS CONSOLIDATED STATEMENT OF PROFIT OR LOSS for the period ended 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated) For the period ended 31 December Note Gross written premiums 31, 7 218, ,148 Premiums ceded to reinsurers 31 (69,431) (63,046) Net written premiums 31, 7 149, ,102 Change in gross unearned premium provisions, including 22 (3,730) (14,124) _ Change in Unexpired risk reserve 7 1,075 1,410 Reinsurer s share in change in unearned premium reserve 22 (1,118) 6,750 Net change in unearned premium reserve (4,848) (7,374) Premiums earned, net of reinsurance 144, ,728 Reinsurance commissions and profit participation 32 26,555 20,634 Net investment income 33 6,622 8,230 Other technical income, net of reinsurance 34 2,206 1,642 Other income ,152 TOTAL INCOME 180, ,386 Claims paid 36, 7 (115,984) (95,048) Reinsurer share in claims paid 36 31,898 26,900 Surrenders and maturities 36, 7 (13,801) (14,161) Net claims paid (97,887) (82,309) Change in outstanding claims provision, net 12,593 2,604 Change in gross outstanding claims provision 23, 7 16,631 9,086 Change in reinsurer s share in outstanding claims provision 23, 7 (4,038) (6,482) Claims incurred, net of reinsurance (85,294) (79,705) Change in life assurance provision, net (7,490) (8,755) Change in gross life assurance provision 24, 25 (7,517) (8,785) Change in reinsurer s share of life assurane provision Acquisition costs 37 (39,336) (34,357) Change in deferred acquisition costs, net 19, 7 4,052 3,108 Administrative expenses 38 (27,188) (28,549) Other technical expenses 39 (20,460) (11,493) Other non-technical expenses 40 (3,212) (2,054) TOTAL EXPENSES (178,928) (161,805)

94 CONSOLIDATED STATEMENT OF PROFIT OR LOSS for the period ended 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated Continued For the period ended 31 December Note OPERATING PROFIT 1,574 1,581 Income tax (323) (409) Deferred taxes 26 (11) 219 PROFIT FOR THE PERIOD 1,240 1,391 Profit attributable to Equity holders 1,065 1,261 Non-controlling interest Earnings per share, BGN The Consolidated Statement of Profit or Loss is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor

95 ANNUAL REPORT 2013 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the period ended 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated) For the period ended 31 December Financial result for the period 1,240 1,391 Other comprehensive income Items that are or may be reclassified to profit or loss Revaluation of available-for-sale financial assets, net (1,121) 1,916 Revaluation of property, plant and equipment (186) _ Revaluation of foreign activities (24) 10 Related tax 96 (64) Items that will never be reclassified to profit or loss Provisions for pensions _ actuarial gains and losses (17) _ Related tax 1 _ Total other comprehensive income (1,251) 1,862 Total comprehensive income for the period (11) 3,253 Comprehensive income attributable to Equity holders (148) 3,087 Non-controlling interest The Consolidated Statement of Comprehensive Income is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor

96 ANNUAL REPORT 2013 CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS for the period ended 31 December 2013 (All amounts are in thousand of BGN, unless otherwise stated) For the period ended 31 December Note CASH FLOWS FROM OPERATING ACTIVITY Profit for the period 1,240 1,391 Adjustments for Depreciation and amortization 38 2,074 2,301 Investment property revaluation _ Impairment of land and buildings 37 _ Revaluation of foreign activities (24) 10 (Gains) from transactions with financial assets (894) (2,844) Impairment of financial investments 33 (49) 400 Impairment of insurance receivables 163 3,856 Foreign currency revaluation Interest and dividend income (8,157) (7,202) Written off fixed assets Impairment of goodwill 9 _ 222 Other changes (8) _ Income tax Deferred tax (219) Total adjustments (5,747) (2,265) Changes in Increase/(decrease) in insurance contract provisions, gross (5,451) 61,990 Increase/(decrease) in reinsurer s share of insurance contract provisions 5,129 (29,171) Increase/(decrease) in insurance and health insurance receivables 12,638 (13,193) Increase/(decrease) in reinsurance receivables 17 2,080 (14,743) Increase/(decrease) in other receivables (1,614) (14,718) Increase/(decrease) in deferred acquisition costs 19 (4,052) (4,662) (Increase)/decrease in insurance and health insurance liabilities 27 (2,584) 1,407 (Increase)/decrease in reinsurance liabilities ,574 (Increase)/decrease in reinsurance deposits ,391 (Increase)/decrease in other liabilities (377) 1,655 (Increase)/decrease in prepaid premiums 30 1,079 (1,288) Paid income tax (323) (201) Total changes in assets and liabilities 7,007 10,041 Net cash flows from operating activity 2,500 9,167

97 CONSOLIDATED STATEMENT OF CASH FLOWS for the period ended 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated) Continued For the period ended 31 December Note CASH FLOWS FROM OPERATING ACTIVITY 2,500 9,167 CASH FLOWS FROM INVESTING ACTIVITY (Increase) in financial assets (16,416) (13,217) (Increase) in property, plant and equipment (822) (1,017) (Increase) in investment property _ (64) (Increase) in other equity investments (645) _ Interest received and dividends 5,854 6,200 Net cash flows from investing activity (12,029) (8,098) CASH FLOWS FROM FINANCING ACTIVITY Acquisition of non-controlling interes (83) _ Acquisition of participation _ 14 Capital contributions _ 312 Paid dividends (755) (28) Merger (7) 7,422 Net cash flows from financing activity (845) 7,720 Increase in cash and cash equivalents (10,374) 8,789 Cash and cash equivalents at the beginning of the period 20 19,967 11,178 Cash and cash equivalents at the end of the period 20 9,593 19,967 The Consolidated Statement of Cash Flows is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor

98 ANNUAL REPORT 2013 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period ended 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated) Share capital Share premium General reserves Reserves Revaluation reserve Accumulated profits/ (losses) Equity Noncontrolling interest Total equity As of 1 January ,475 34, ,305 (9,414) 76, ,945 Comprehensive income for the period Financial result for the period 1,065 1, ,240 Other comprehensive income Revaluation of foreign activities _ (12) _ (12) (12) (24) Revaluation of fixed assets _ (177) _ (177) (9) (186) Provision for pension-actuarial gains and losses _ (17) _ (17) _ (17) Revaluation of available-for-sale financial assets _ (1,099) _ (1,099) (22) (1,121) Related tax effect _ 92 _ Total other comprehensive income _ (1,213) 1,065 (148) 137 (11) Transactions with shareholders recorded directly in equity Paid dividends (586) (586) (169) (755) Acquisition of non-controlling interest (53) (53) (30) (83) Other changes (8) (8) _ (8) Retained earnings distribution 202 _ (202) _ Total transactions with shareholders recorded directly in equity 202 _ (849) (647) (199) (846) Merger of ZOD Bulstrad Health into ZAD Bulstrad Life VIG (11) (11) 4 (7) As of 31 December ,475 34, ,092 (9,209) 75, ,081

99 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period ended 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated) Continued Share capital Share premium General reserves Reserves Revaluation reserve Accumulated profits/ (losses) Equity Noncontrolling interest Total equity As of 1 January ,435 23,488 _ 17,480 (2,804) 65, ,972 Comprehensive income for the period Financial result for the period 1,261 1, ,391 Other comprehensive income Revaluation of foreign activities _ 8 _ Net revaluation of available-for-sale financial assets _ 1,817 _ 1, ,852 Total other comprehensive income _ 1,825 1,261 3, ,253 Transactions with shareholders recorded directly in equity Paid dividends (28) (28) Capital contributions Acquisition of participation (16) (16) Retained earnings distribution 99 _ (99) _ Total transactions with shareholders recorded directly in equity 99 _ (115) (16) Merger of ZK Bulgarski Imoti AD 4,040 11,129 9 _ (7,756) 7,422 _ 7,422 As of 31 December ,475 34, ,305 (9,414) 76, ,945

100 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period ended 31 December 2013 (All amounts are in BGN thousand, unless otherwise stated) Continued The Consolidated Statement of Changes in Equity is authorized for issue by the Management Board on 18 March Rumen Yanchev Executive Director Christoph Rath Executive Director Theodore Iliev Financial Director Dobrina Kaloyanova Authorised Representative KPMG Bulgaria Margarita Goleva Registered Auditor Krassimir Hadjidinev Registered Auditor

101 SIGNIFICANT EVENTS IN 2013 ANNUAL REPORT 2013

102 ANNUAL REPORT 2013 SIGNIFICANT EVENTS SIGNIFICANT EVENTS IN 2013 VIENNA INSURANCE GROUP in Bulgaria honoured with two prestigious awards for Insurer of the Year 2013 At the award ceremony for Insurer of the Year 2013 which was held in November 2013, ZAD BULSTRAD VIENNA INSURANCE GROUP won the prestigious award for the Most Prompt Insurer of 2013 for payment of damages for bodily injury under Motor Third Party Liability Insurance. At the same event ZAD BULSTRAD LIFE VIENNA INSURANCE GROUP was selected as the Insurer with the Best Life Insurance Products. The awards in the contest are presented by the Bulgarian Association of Insurance Brokers (BAIB) in partnership with the Bulgarian Association of Victims of Road Accidents. According to the rules of the contest, the winners in the categories are selected in two parallel votes: the vote of insurance customers and the vote of members of the Bulgarian Association of Insurance Brokers. It was the professional vote of insurance brokers which distinguished ZAD BULSTRAD VIENNA INSURANCE GROUP, while in the online vote customers chose ZAD BULSTRAD LIFE VIENNA INSURANCE GROUP as the Life Insurer of the Year Program promoting the partnership with brokers The Sustainable Partnership Program with the participation of insurance brokers, partners of ZAD BULSTRAD VIENNA INSURANCE GROUP, was held successfully for a second consecutive year. The program reflects the belief that sharing common principles and values, namely long-term thinking, sustainability and equally balanced relationships, helps to expand the mutual trust and the horizons and depth of cooperation with insurance brokers and that this solid foundation will lead to the achievement of better results and improved quality of the provided insurance services. The program is part of the vision of ZAD BULSTRAD VIENNA INSURANCE GROUP of long-term partner relationships whose ultimate goal is to boost the premium income generated by brokers. In 2013 the brokers who won in the categories of the competition were distinguished with a special award, a statuette of a Saint Bernard dog. The statuette has been designed by Georgi Chapkanov, an artist of international repute, and it features one of the symbols adopted by ZAD BULSTRAD VIENNA INSURANCE GROUP through the years. Competition of the insurance agents of ZAD BULSTRAD VIENNA INSURANCE GROUP For a third consecutive year the insurance agents of BULSTRAD VIENNA INSURANCE GROUP took part in a sales competition for Third Party Liability, Motor Casco and Property Insurance. Each of the 250 participants in the competition was presented with individually set goals, whose achievement ensured the participant s right to continue to the next stages of the competition. Over 210 of the agents performed successfully. Those who reached the top received various awards: vacation trips abroad, camera equipment and other material and non-material incentives. Social Active Days organized for a third consecutive year Within the framework of the traditional Social Active Days, the companies of VIENNA INSURANCE GROUP in Bulgaria _ ZAD BULSTRAD VIENNA INSURANCE GROUP and ZAD BULSTRAD LIFE INSURANCE GROUP _ organized once more a volunteer initiative for helping people in need, in partnership with the Bulgarian Charities Aid Foundation. Between 25 October and 8 November 2013, approximately 100 volunteers from the offices of the two companies in Burgas, Varna, Pleven, Plovdiv, Ruse, Sofia and Stara Zagora collected, sorted and distributed food donated for disadvantaged people. They also helped with the making of souvenirs and cards which are often a source of additional funds for many non-governmental organizations in Bulgaria.

103 ÊEY PEOPLE ANNUAL REPORT 2013

104 ANNUAL REPORT 2013 KEY PEOPLE KEY PEOPLE RUMEN YANCHEV Chairman of the Management Board and Executive Director tel: 359 2/ , CHRISTOPH RATH Member of the Management Board and Executive Director tel: 359 2/ IVAN IVANOV Member of the Management Board tel: 359 2/ IVO GRUEV Member of the Management Board Manager of VIG Services Bulgaria tel: 359 2/ , RUMYANA MILANOVA Member of the Management Board and Director Reinsurance Department tel: 359 2/ DIANA EVSTATIEVA Company Management Counselor tel: 359 2/ IVAYLO AXENTIEV Director Marine Insurance Department tel: 359 2/ IVAYLO PARVANOV Director Aviation Insurance and Reinsurance Department tel: 359 2/ PLAMEN SHINOV Director Motor Insurance Department tel: 359 2/

105 PLAMEN ZAHARIEV Director Property and PA Insurance Department tel/fax: 359 2/ ALITSIA MINKOVA Director Cargo and Carrier s Liability Department tel: 359 2/ alicia_minkova@bulstrad.bg RALITSA TABAKOVA Director Liability Insurance Department tel: 359 2/ liability@bulstrad.bg ATANAS SIMEONOV Director Engineering Insurance Department tel: 359 2/ a_simeonov@bulstrad.bg ANGEL KINANOV Director Agricultural Insurance Department tel: 359 2/ angel_kinanov@bulstrad.bg; agro@bulstrad.bg NIKOLA PAMUKOV Director Actuarial Department tel: 359 2/ nikola_pamukov@bulstrad.bg EVGENIA KALO-KOLOVA Director Legal Department tel: 359 2/ evgenia_kalo@bulstrad.bg THEODORE ILIEV Director Finances, Accounting and Analyses Department tel: 359 2/ teodor_iliev@bulstrad.bg ALEXANDER VLADOV Director Risk Analysis and Assessment Department tel: 359 2/ a_vladov@bulstrad.bg

106 RUMYANA MARKOVA Director of Receivables Management Department tel: 359 2/ å-mail: ANNIE MIHAYLOVA Director Administrative Department tel: 359 2/ KIRIL PETKOV Director Information Technologies Department tel: 359 2/ VIOLETA RUSEVA Director Marketing and CRM Department tel: 359 2/ DIMITAR TANCHEV Director Sales Department tel: / ZORNITSA YORDANOVA Director of Analysis, Coordination and Control of Business with Insurance Brokers Department tel: / BLAGOY ANKOV Director Investors Relations Department tel: 359 2/ KONSTANTIN IVANOV Director General Insurance Claims Department tel: 359 2/ ANGEL SHINOV Director Customer Relations and Handling of Specific Claims Department tel: 359 2/

107 VLADISLAV VASEV Director Evaluation and Claims Abroad Department tel: 359 2/ KALOYAN MONOV Director Evaluation and Claims Abroad Department tel: 359 2/ STANIMIR GRIGOROV Director Handling of MOD Claims Related with Garages Department tel: 359 2/ HRISTO IVANOV Director Control of Insurance Claims Department tel: 359 2/ DEYANA IVANOVA Director Human Resources Department tel: 359 2/ MILKA VELEVA Head of Internal Control Office tel: 359 2/ ANYUTA DENKOVA Public Relations Deputy Director Marketing and CRM Department tel: 359 2/ VESELKA YANCHEVA Director SOFIA General Agency tel: 359 2/ GEORGI NENOV Director PLOVDIV General Agency tel: /

108 GALIN GEORGIEV Director VARNA General Agency tel: /612275, ILIYA DIMITROV Director RUSE General Agency tel: / KRASIMIR SABEV Director BURGAS General Agency tel: /877007, SVETOZAR GANCHEV Director PLEVEN General Agency tel: / ANDON STANKOV Director SOUTH-WESTERN BULGARIA General Agency tel: / NIKOLAY DONCHEV Director STARA ZAGORA General Agency tel: /622591, IVAN IVANOV Director SLIVEN General Agency tel: / NIKOLAY KARAKASHEV Director SHUMEN General Agency tel: / VALERI DILOV Director VRATSA General Agency tel: /

109 DIMITAR PAPAZOV Director VELIKO TARNOVO General Agency tel: /625980, ZEHRA ALISH Director PAZARDZHIK General Agency tel: / GEORGI DIMOV Director HASKOVO General Agency tel: /588948, RAYKO GEORGIEV Director MONTANA General Agency tel: /300667,

110 VIG SERVICES BULGARIA ANNUAL REPORT 2013

111 ANNUAL REPORT 2013 VIG SERVICES BULGARIA VIG SERVICES BULGARIA VIG Services Bulgaria is an authorized representative to receive and handle material damages claims under motor insurances of ZAD BULSTRAD VIENNA INSURANCE GROUP. CLAIMS HANDLING CENTERS HASHOVE 1330 Sofia, Krasna Polyana District tel: 359 2/ , , A Hashove St. fax: 359 2/ , mobile: / GORUBLYANE 1138 Sofia, Gorublyane District tel: 359 2/ , , Eng. Georgi Belov St. fax: 359 2/ , mobile: / kasko_claims@bulstrad.bg PLOVDIV 4000 Plovdiv, Naycho Tsanov Blvd. tel: / (under Rodopi Overpass) mobiles: / plovdiv@vig-sb.bg BURGAS 8000 Burgas, Izgrev Residential District tel/fax: / Transportna St. (Autohouses area) mobiles: /304993, / burgas@vig-sb.bg VARNA 9000 Varna, Vazrazhdane Residential District tel/fax: / Anna Feliksova St. mobiles: /304014, / (next to Billa Supermarket) varna@vig-sb.bg VELIKO TARNOVO 5000 Veliko Tarnovo, 7A Nish St. tel/fax: / mobiles: /004131, / veliko_tarnovo@vig-sb.bg RUSE 7000 Ruse, Iztok Residential District tel/fax: / Kotovsk St. mobiles: /301124, / ruse@vig-sb.bg PLEVEN 5800 Pleven tel: / Storgoziya Residential District mobiles: /301223, / pleven@vig-sb.bg SHUMEN 9700 Shumen tel: / Dobrudzhanski Residential District mobile: /004703, / Saedinenie St. shumen@vig-sb.bg SLIVEN 8800 Sliven, 55 Burgasko Shose Blvd. tel: / (next to Billa Supermarket) mobile: /696919, / sliven@vig-sb.bg STARA ZAGORA 6000 Stara Zagora, 22 Slavyanski Blvd. tel: / Business Center Praktis mobile: / st_zagora@vig-sb.bg

112 OFFICES ANNUAL REPORT 2013

113 ANNUAL REPORT 2013 OFFICES OFFICES OF ZAD BULSTRAD VIENNA INSURANCE GROUP* RUSE MONTANA PLEVEN SOFIA VRATSA HEAD OFFICE VELIKO TARNOVO SHUMEN VARNA STARA ZAGORA SLIVEN BURGAS PAZARDZHIK PLOVDIV HASKOVO PETRICH Head Office General Agencies _ 15 Offices _ 59 HEAD OFFICE 1000 Sofia, 5 Pozitano Sq. tel: 359 2/ , fax: 359 2/ General Insurance Claims Department Sofia, 1A Hashove St. tel: 359 2/ , , , fax: 359 2/ OFFICES 1000 Sofia, 6 Tsar Osvoboditel Blvd. (General Agency) tel: 359 2/ fax: 359 2/ Sofia, 5 Pozitano Sq. tel: 359 2/ , , fax: 359 2/ Sofia, 136 Vasil Levski Blvd. tel: 359 2/ , fax: 359 2/ Sofia, Balsha St., bl. 8 tel: 359 2/ , , fax: 359 2/ Sofia, 44 Venelin St. tel: 359 2/ , fax: 359 2/ Sofia, Mladost 4, Business Park Sofia, bl. 10 tel: 359 2/ , fax: 359 2/ Sofia, Sofia Airport, Terminal 1, Departures tel: 359 2/ fax: 359 2/ Sofia, 1À Hashove St. tel: 359 2/ , fax: 359 2/ Sofia, Gorublyane, 4 Eng. Georgi Belov St. tel: 359 2/ , Sofia, 32G Cherni Vrach Blvd. tel: 359 2/ mîbile: / Dupnitsa, 5 Ivan Vazov St. tel/fax: /51145 *At the end of 2011 was launched a project for development of an additional sales channel being a chain of exclusive representatives of the Company which operate under a franchise model and have the status of branch offices. Such have already been established in the cities of Sofia, Varna, Razgrad, Targovishte, Lovech, Vidin, Botevgrad, Silistra, etc.